Although the House of Representatives eventually passed the government's $700 billion rescue plan, fi nancial sector woes persist, spreading further into the UK and Europe. The underlying asset quality of many US banks is weak and excessive leverage throughout the fi nancial system still needs to be unwound.We believe that the US housing market needs to stabilise before asset quality among fi nancial institutions improves. Following the recent series of bankruptcies and rescues in the fi nancial sector, we expect consumer confi dence to fall further. However, the unprecedented nature of recent and prospective policy actions will likely limit any further deterioration in credit markets.We expect volatility to persist in the US equity market in the short term. However, we see encouraging underlying trends of accelerating dividend increases. US investors are becoming more dividend conscious on the back of a fundamental demographic shift. Legions of baby boomers are heading into retirement and will need to rely on incomes from their investments to supplement their pension benefi ts. This should encourage companies to raise their dividends more rapidly than earnings growth.
203.73p
