Investors are once more facing a period of uncertainty but there are signs that the markets are expecting a happy ending. Standard Life Investment Managers believes that equities will be rescued by the favourable global monetary environment, namely falling interest rates and growth in money supply, but cautions that investors will have to be brave over the coming months.

"To get to the other side investors will need to close their eyes and not look down," it says.

Two opposing forces have been at work in 2001. In January, stocks rose on hopes that lower US interest rates would soon turn that economy around. During February and March they fell, as the reality of slower growth began to bite throughout corporate America.

Stocks began rising again from mid-March as recovery hopes re-emerged following more aggressive Central Bank rate cuts but now they are precariously balanced. Analysts continue to cut their 2001 profits forecasts by almost 2 percentage points and profit warnings are everywhere.

Yet, despite having drifted off a bit over the past few weeks, markets have by and large held onto most of the gains made since late March, leading Standard Life to believe the markets are still confident.

But be warned. The markets expect the US economy to show signs of picking up soon, which will be an important signal that the worst might soon be over for the slump in company earnings. As soon as economic recovery appears on the horizon, the need for further cuts in US interest rates will disappear. But if the recovery is slower to emerge, corporate earnings will also be weaker and the good old days of double-digit profits may not necessarily re-emerge.