Riding the wave amid signs of light at the end of the Covid tunnel

Manufacturing output globally is rising at its strongest rate for 11 years

DESPITE the majority of the news focussing on political ructions, the potential for Scottish independence, the Labour party still trying to find its way and, closer to home, the impending appointment of the new party leaders of the DUP and UUP, global stock markets are quietly getting on with going up, reflecting a wave of optimism as we see definite signs of light at the end of the Covid tunnel.

Announcements of a cautious re-opening of the economy, combined with rising vaccinations and falling infections have added to the optimism.

Last week the UK, US (with the exception of the Nasdaq index) and Europe saw markets climb and the FTSE 100 moved decisively through the 7000 mark.

The strong performance was led by commodity stocks and we are now seeing several mining stocks trading at or near their all-time highs. We are mostly through the US reporting season and here, too, we have seen positive outcomes: the majority of companies have beaten forecasts (although sometimes it has been helped by a relatively low comparison).

This feeling of optimism is further reflected in the latest Confederation of British Industry (CBI) industrial trends survey, where manufacturing optimism in the three months to April increased at its fastest pace since 1973 and investment intentions for plant and machinery were at their strongest since July 1997. This is not just confined to the UK: globally manufacturing output is rising at its strongest rate for 11 years.

Of course, the question is whether this can last: after what we have been through anything like normality seems ideal.

Last week we saw very disappointing employment figures from the US that were significantly below predictions, but it has not knocked the optimism off course as far as the markets are concerned.

The real question concerns how the world will look once the pandemic is truly under control – and this is by no means just round the corner.

There are already indications that some things have changed for ever, it seems unlikely that we will all return to working full-time in offices, for example, which has a knock-on effect to town and city centres.

The trends in shopping have been accelerated as we are all more used to on-line procurement and it seems likely to be sometime until global travel resumes.

The crucial element in economic recovery is support from governments: the eye-watering figures that have been spent in propping up the beleaguered economies are astonishing. So far the question of repayment has been kicked down the road but it seems likely that this will overhang us for many years to come.

In normal times (if any of us can remember what they are) the well-used adage to sell in May and go away reflects the quiet summer months when activity declines in the markets. This year is not shaping up to be “normal” and it may well prove to be one of the years where this does not apply.

:: Cathy Dixon is a partner at the Belfast office of Smith & Williamson Investment Management. This article does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise.

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