Shares Rally- Is it a Sign of Genuine Recovery?

Is the Current Stock Market Upswing due to Economic Green Shoots?

Aug 24, 2009

There is renewed confidence in stock and share trading so does this mean that the economy is picking up and is it a good time to buy? Or is it a false dawn?

Those who scan the Financial Weekly or Financial Times will have noticed that there is a current upswing in the prices of stocks and shares. This could be interpreted as a sign of increasing confidence in the stock market which has been pretty much in the doldrums since the sub prime debacle began in 2008.

Buying Stocks and Shares When the Price is Low

The theory of stocks and shares says that you purchase when the price is low and then wait for the price to rise. The problem is, of course, that is is extremely difficult to know when to purchase or when to sell. The sub prime slump that occurred in January 2008 caught many people who had been persuaded to dabble in shares unawares.

Credit Boom Convinces Investors to Go into Stocks & Shares

For the previous four years, between 2003 and 2007, there had been a credit boom and stocks and shares had risen pretty much continuously during that period. Many investors who wouldn't traditionally use the stock market as a way of investing their savings, had been tempted to spend their hard earned pension savings in this way. This was largely a reaction to the losses that many had experienced through failing pension funds.

So the Sub Prime Slump hit many ordinary folk very hard when on 21 January 2008 the FTSE 100 index experienced its worst one-day fall in more than six years, resulting in a 5.5% slump. This effectively wiped out much of the value of the investments that people had made.

Has the Slump Bottomed Out Now?

So can we trust the recent upswing in the markets? Investor John Riddle thinks that it is too soon to start flying the flags and claiming that the economy is in recovery. He reasons that many of the companies who are currently posting profits and seeing rises in share prices have only achieved this by ruthlessly slashing staff and jettisoning investment plans.

Come the fall, he argues, there may be another down turn as the false flame of recovery is snuffed out. He suggests that next year, with no further economies to be made, there could be another dip in stock market prices.

To Buy or Not to Buy, That is the Question

It seems that many people are getting renewed confidence and have started purchasing stocks and shares at the moment, but it would take a brave person to state that the economies of the western world are recovering. Most investors will still be smarting from the last time they got their fingers burnt!

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