Notes

significantly over the next few months,'' says Justin Urquhart Stewart of Barclays Stockbrokers.

''The storm clouds had looked fairly distant but they were there. Now we have concern over Japan and the strength of the yen, and the possible repatriation of Japanese overseas funds, particularly from the US but also from the UK. We have concern over emerging markets - the Indonesian

situation, Ecuador's debts, and of course Russia. On top of that, there's the rise in interest rates in the US, the large US trade deficit, and interest rates here which were raised earlier than most people had expected and may rise again.''

Broker Charles Stanley comments: ''Interest rates are at the heart of the matter.'' And it wonders: ''Is it possible that interest rates might rise only moderately to restrain inflation, at the same time permitting a respectable level of economic growth and corporate profits to develop?''

As Urquhart Stewart remarks: ''It all adds up to uncertainty, which is bad for confidence.''

But look around and you may discover not all the news is bad. Analysts believe companies still have some pretty good profit figures to announce. The Continental European and UK economies are still showing signs of growth and the US may be growing too fast - which is why rates went up.

''It is a pretty uncertain outlook over the next few months,'' says Urquhart Stewart.

Active and short-term investors probably quit the market when interest rate rises gave shares their initial jolt. But what should the rest of us do? We have seen this sort of thing before - so should we jump into the lifeboat or hang on?

With the FTSE-100 index falling below 6000, Urquhart Stewart says: ''Now is not the time to head for the lifeboat. Batten down the hatches and have a careful look at good quality stocks.''

For the time being at least, this should mean being particularly cautious about fashionable sectors and companies where you look like having to wait years before being rewarded with a dividend.

While it is inevitably tempting to sell out and secure at least some of the profits which most investors will still be sitting on, you will then be giving yourself the problem of what to do with the cash.

Finding an investment outside the market with a worthwhile return is risky these days, timing a move back to shares even more so.

As Urquhart Stewart points out: ''History says you are more likely to lose money by being out of the market than by being in it.''

He adds: ''We have had a very long bull run and may be heading into a different phase. Frothy shares will go down, the index will go down, but not all shares will go down. Some may be quite resilient, though it is difficult to say which. If you are a short-term investor and find all this frightening, maybe you should sell. But if you are a medium-term investor, stay medium and collect your dividends.''

Shares he suggests could be bought when they look cheap include banks, such as Lloyds TSB, and Cable & Wireless, which fell to 670p when it went out of favour. He likes big companies with sustainable profits whose prices should bounce back in any recovery. Others he favours include Glaxo Wellcome at below 1600p and British Telecom which had fallen to 923p.

The Bank of England's surprise hike in UK interest rates - which it this week admitted ''carried some risks'' and ''might damage consumer and business confidence'' - was intended to slap down inflation which it apparently spotted lurking some way ahead. Experience suggests if there is any doubt the Bank will err on the side of putting rates up, so rate-watchers say there may well be another increase in November.

Deflation, which can be as worrying as inflation, was last year's concern for a shortish spell, and it is perhaps instructive to see how volatile the market was then. In mid-July the FTSE-100 was 6174. It dropped to 4648 early in October, but by late November was around 5700 and got back into the 6000s by early January this year.

Let's hope the bungee bounces as satisfactorily this time round.