Among the sectors which have started to gain the attention of value investors are the technology and (page 1 of 3)

This is a clear disappointment for European equity markets, as lower interest rates would have a positive impact on equities and the euro in our view

US Markets

Stock markets proved to be very volatile last week. After the sharp decline in the first half, the technical rebound did not come as a surprise. This was especially due to the fact that the markets looked to be oversold. The rebound came on the back of better than expected, after initial jobless claims figures, which came in on Thursday. However, we did not see the volumes we would have liked to see in order to talk about a return of investor confidence. The S&P 500 Index came close to an important technical support at 770 points, when it closed at 776.76 on the 9th of October. We continue to believe that block trades heavily influenced market movements, where hedge funds move big blocks of shares in order to place some form of influence the market. Most investors continue to stay on the sidelines wanting to see a real improvement in the economy, before they start buying stocks. Companies' profit outlook remains very bleak and mid quarter updates have given a first view into what we can expect for the earnings season ahead. We remain cautious and are not convinced that the market will move up on positive earnings guidance given by the companies reporting their third quarter numbers.

Sector wise we believe that the oil companies are likely to continue to do well. We would especially focus on the upstream part of the business, which is the main beneficiary of the high oil price environment. The possibility of military intervention in Iraq is continuing to drive crude oil prices. We do not expect the situation to ameliorate any time soon, which gives us reason to believe that oil companies will continue profit from high prices. We also expect analysts would revise their average oil price forecasts on which they base their assumptions for the sector's profitability. We currently recommend Noble Corp (NE, CSFB: Neutral) which is a pure play offshore drilling company and as such a bet on the upstream business.

Placer Dome (PDG, CSFB: not rated) share price has seen some weakness, as the gold mining stock declined as a group. We believe that this weakness is unwarranted, given the fact that the gold bullion price remains firm at $318 levels per ounce. We believe that this weakness offers a buying opportunity for investors who would like to diversify their portfolio with an investment in gold as an asset class. The recent decline does not take into account that the mining companies have reduced their hedge books and will likely profit from high gold prices. Gold continues to be a safe heaven given the uncertain economic outlook and should see continued strength. However, we perceive a risk to the price of gold in the very short term, should the rally in the equity market continue for some time. We would then expect some weakness in gold, which should also be reflected in the share price performance of the gold mining stocks. However, we do not expect a prolonged rally in the US equity markets, as there has been no solid proof of a return in investor confidence. There has been too much disappointment and the uncertainty amongst most investors is at such high levels, that we would expect rapid profit taking to take place, should we see a series of trading sessions closing on the upside.


European Equities

• The DJ Euro Stoxx 50 finished the week 5.7% higher after a rally late on Thursday which extended into Friday, broke the downward movement earlier in the week.

• CSFB upgraded the telecom equipment sector from underweight to neutral.