By year-end, pessimism was on the rise. Nevertheless, there are several reasons for increased optimism in the long-term outlook. By far the most important is the prospect of declining interest rates. Similar to what happen with the previous round of interest rate increase in Canada and the United States, there is roughly a nine month lag in the impact of interest rate moves on the economy. The fund advisor anticipates increasing growth levels in the second half of 2001.
Stocks also tend to do much better in declining rate environments than rising rate environments.
Furthermore, stock market valuations have become far more attractive, with median price earnings ratios in line with long-term averages. Therefore, while the next quarter or two may continue to present difficulties for investors, Acuity believes that the US Federal Reserve Board will successfully avert a recession through a series of interest rate cuts and equities should start to perform well again.