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Productivity is crucial to a soft landing


In the first quarter of this year, the US Federal Reserve has cut interest rates by 150 basis points. But Nasdaq is down 25%, most European equity markets have fallen 15% to 20% and even the Dow, which had been flat for two years, is now off 14% for the year.

It's true that if you strip out the technology, media and telecoms stocks from these indices, the old-economy stocks have held up well. But you can't have it both ways - putting the new-economy stocks into the index when they go up and removing them when they plunge. So does the sell-off in hi-tech stocks herald a long-term bear market in equities and a hard landing for the US and global economies?

I don't think so.

One big reason for optimism is that the overvaluation of equity markets relative to bonds during 2000 has swung back in favour of stocks.

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