IC June 2009 business news: rally continues

The business news originally appeared in the July 2009 issue of International Cranes and Specialized Transport magazine.

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Despite a few signs of wavering, stock markets kept on climbing in May, shrugging off swine flu and bankruptcies in the auto industry. Chris Sleight reports.

Confidence is a fickle emotion. At the start of the year the promise of unprecedented stimulus spending around the world and a new, energetic president in the US could do nothing to pull share prices out of their tail spin.

Fast-forward to May, with Chrysler in Chapter 11 bankruptcy proceedings and (at the time of writing) GM seemingly not far behind, plus so-called "swine flu" providing the latest global health scare, and the markets can do nothing but climb.

Investors are clearly starting to see some light at the end of the tunnel. The question is of course, how long will the rally continue?

It is not unusual for there to be a surge in share prices in the early part of the Northern hemisphere summer. In fact, unless sentiment is unusually bullish, late May and early June can often be the high-tide market for share prices in a given calendar year.

Theories abound as to why this phenomenon should occur. Certainly there are people who believe in the old maxim of "Sell in May then go away," but why the markets should have this odd seasonality is another question.

It could be linked to the AGM and dividend payment season - usually around this time of year - or it could just be coincidence or a product of human emotion.

Crane shares

Whatever forces were at work in May, the results were resoundingly positive for the markets. Between weeks 17 and 21 the Dow was up 4.06%, the FTSE 100 7.67% and the Nikkei an impressive 9.12%.

IC's Share Index rose 7.38% over the same period to 231.20 points. At this level it was almost back in the black for the year to date, having started 2009 at 234.16 points.

All of the equities that make up the IC Share Index, apart from Kobe Steel, rose between weeks 17 and 21, with Hitachi, Konecranes, Manitowoc and Tadano particularly standing out.

Currencies

It was also something of a counter-intuitive month for exchange rates. Despite Standard & Poor's (S&P) putting a negative outlook on UK Government debt, the pound rose sharply. The Dollar, for example, lost 8.50% of its value against the pound in just this four-week period.

One explanation is that this was anticipated by the markets and therefore priced-in ahead of S&P's announcement. Another factor is that now confidence is returning, investors are getting out of safe havens like the Dollar and diversifying into other reserve currencies, driving up the value of the pound.

Outlook

It will be interesting to see if the stock market rally continues on into June. The traditional seasonal pattern of the stock markets would suggest this is unlikely. On the other hand, shares still look cheap by traditional valuation measures, so buyers may be tempted.