Anyone taking an interest in US politics in recent years will know that President Donald Trump keeps a keen eye on the stock market.
In particular he likes to conflate America’s motoring economy with the Dow Jones smashing new highs. After all, there’s nothing like a surging stock market to give everyone the impression that the good times are rolling. So it’s no surprise that President Trump likes to talk it up.
But things aren’t quite that simple.
There’s no doubt that a booming economy will in places roughly translate to higher profits and rising stock prices. But there’s a well worn phrase in finance that the stockmarket is not the economy - and you only need to look at UK shares in recent weeks to see that.
Coronavirus crashed the market in mid-March, but since then equity prices have been rising. At the company and industry level, there have been big winners and losers, but generally the market has been in a steady uptrend. The FTSE All Share is up around 28% since the end of March, and the FTSE AIM All Share (below) is up by 50% over the same period.
FTSE AIM All Share: 3 years
One might wonder why. Millions of people face a deeply uncertain future, businesses are in turmoil, earnings have collapsed and whole sectors face genuine peril. If corporate earnings are about to readjust very significantly downwards, why hasn’t the stock market?
Analysts offer a host of possible reasons. It could be that the market is sanguine on the idea that corporate profits will recover in time. Or to put that another way, this was a good buying opportunity. It could be that, even with the risk of another pull back, there is still no better place to deploy capital in such a low rate environment.
Finding the best stocks on the move
For those investors taking a bullish view on stocks, the future is certainly scary. A spate of dramatic earnings contractions looks like a dead cert, so picking shares that can navigate their way through all this is a delicate job.
The Alternative Investment Market - which is 25 years old this month - has perhaps been a surprisingly strong performer in the aftermath of the coronavirus lockdown. As a smaller-cap market for growth stocks, it has historically been quite…
