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With St Leger's Day fast approaching (11th September) you may be looking for advice as the new season for investing commences. After a strong start to 2010, the FTSE 100 became fragile in February which started with a seven per cent drop amid fears that the Greek sovereign debt crisis would become contagious and spread through other vulnerable European economies including Portugal, Ireland, Italy and Spain. However, the market recovered and was uplifted to a high of 5825 in mid-April but returned to a more profound low of 4805 in July as uncertainties about the outcome from the UK general election weighed on sentiment, followed by the impact of BP's fall from grace.

The stock market is not meant to rally in the summer months according to the traditional saying "sell in May and go away, come back on St Leger Day" which refers to the trading floor refrain. And whilst some losses have been regained, the market has struggled to break through the 5400 level ~ some 425 points lower than April's highest point.

A survey of Redmayne-Bentley's brokers and investment managers back in mid-December forecast only modest progress for the UK stock market with the consensus of 5480 points for the FTSE 100 at the end of 2010. So far they have got it right with a projected high of 5810, very close to April's high of 5825. Looking at the other end of the spectrum the forecast low for 2010 was 4650 ~ still over 500 points lower than where we currently stand and with current double-dip recession fears, what is the outlook for the remainder of the year? What opportunities and issues should investors look out for?

A key talking point amongst central bankers and economists is the issue of deflation versus inflation. Having already seen the Bank of England pump £200bn into the monetary system and the latest Monetary Policy Committee notes indicating that the idea of further Quantitative Easing (QE) is now back on the table, initial thoughts would be that inflation is a sure bet. Add to this rising commodity prices such as wheat and cocoa, a steady rise in the oil price, a VAT hike to 20 per cent and imported inflation from China as disgruntled workers fight for fairer pay, and the argument looks hard to quell. Indeed, further QE would offer support for further market rallies but the tap has to be turned off permanently at some point and the economy needs to find the ability to correct by itself. However, the deflation argument is gaining ground as witnessed by the current trends in the bond market. US Treasuries and UK Gilt yields are reaching 16-month lows, and German Bunds have gone further setting all-time record lows. What this indicates is that investors are not overly alarmed at the possibility of imminent inflation, but more so, deflation. Supporting this is the outlook for interest rates which are set to remain low well into 2011 and continued poor economic data from the US.

Investors would be prudent to position themselves defensively against the economic backdrop, aligning exposure to companies with strong foreign operations and good cash balances which can be used for further expansion, whether this be organic growth or through acquisitions. With bank savings accounts still paying derisory interest, the FTSE 100 index is a good option to generate additional income with multi-national corporations such as GlaxoSmithKline, Royal Dutch Shell and National Grid worthy considerations. Our favoured commodity exposure is gold, in light of the safe haven qualities, with the preferred investment route via the ETF Physical Gold. This is the best representation investors can get to the underlying asset but should be aware of the tracking error involved. Cash still remains on the sidelines amongst some investment managers in anticipation of a pullback, but opportunistic valuations would be soon capitalised on. It is important to note that portfolios created by our investment managers are tailored to suit the individual circumstances, objectives, timescales and risk profile of our clients and will vary accordingly. If you would like to know more about our advisory and discretionary investment management services please call on 0113 200 6530.