Records again

20 March 2008

The wobbles of February seemed a distant memory last month, with stocks around the world rallying strongly to hit record highs. Week 22 saw both the Dow and, perhaps more significantly, the S&P 500 hit record highs in the US.

While the Dow is the most famous and widely reported index of US stocks, it is a narrow measure, being composed of just 30 companies’equities. The S&P 500 is a much broader measure of stock market performance, due to its composition of 500 large capitalisation US companies.

With a 4.17% gain between weeks 17 and 22, it was the Dow that performed best of the mainstream indicators over the five week period. However, the FTSE 100 and Nikkei 225 were not far behind, with 3.57% and 3.29% gains, respectively.

But as is often the case when the markets are rising, IC's Share Index of lifting equipment producers enjoyed an even more robust improvement. The Index climbed 9.70% to hit a new all-time high of 662.64 points.

One would expect the strong performance in the US would have meant the US manufacturers had driven the rise in the IC Index. But while both Terex and Manitowoc both had good gains of 8.36% and 11.43% respectively, they were put in the shade by KCI Konecranes and Palfinger, which were up 21.66% and 25.55%, respectively. Japan's Tadano was also very strong with a 19.61% share price rise.

This all underlines the current sense of buoyancy on the markets. Compared to 12 months ago the Dow is more than 21% higher, while the FTSE and Nikkei are a little weaker, but still respectable with year-on-year gains around 15%. But these good gains are dwarfed by the performance of the crane sector, which is up almost 60% compared to a year ago.

Currencies

May saw the Dollar recover some of its previous losses against the Pound and Euro, while it continued to appreciate against the Yen. The improvement against the Pound was a little surprising given the 0.25% increase in UK interest rates in May. The Bank of England is sounding more hawkish about interest rates, and there is a general expectation in the markets for one or two more 0.25% rises before the year is out.

Outlook

The strengthening US outlook is good news for shares around the world. The flipside to this is that this brings the threat of higher inflation, which could lead to interest rate rises. There needs to be a fine balance if shares are to continue climbing - the US market in particular has shown itself to be quite sensitive to interest rate rises.

Another factor to watch out for is the spectre of further ‘market corrections’like the ones seen in February and last May. The longer the rally continues, the more likely a sudden fall becomes, and this leads to a certain nervousness among investors that can translate to big sell-offs in response to only mild-sounding economic bad news.

But these two concerns notwithstanding, the markets look strong and well-placed for further growth.

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