Stock market recovery?
The dramatic recovery in stock market prices during the last few days should be viewed with extreme caution by investors, though there appears to have been an element behind the swing in prices that gives reason for more deep-seated confidence. The break that led to higher prices was said to be due to the lowering of the inter-bank rate by another quarter of a per cent for the second week running, and the exhaustion of the latest tap stock. This does not seem to reflect a true appreciation of all that has occurred. There was a rumour that stringent economic measures — autarkic in their nature — were to be announced. This was reinforced by the decision to abandon the Channel Tunnel project, which was generally welcomed by the stock market — and by The Spectator, though by few others — who saw it as an indication of the Government's desire to curb public debt and to withstand unfavourable reactions from Europe.
No sooner had market opinion been stimulated by this news than the Prime Minister was seen to be enjoying himself in announcing a referendum for June. The stock market, which claims it reflects what may be happening to the economy up to eighteen months ahead, leapt further. Accepting the view of the opinion polls that the public mood is against staying in the European Community, it is interesting to observe that those who back their hunches with cold cash do not think that withdrawal means disaster for Britain but probably the reverse. All this good news was further and dramatically helped by preliminary indications of Mrs Margaret Thatcher's growing support within the Conservative Parliamentary Party against Mr Heath for the leadership.
Falling interest rates will continue to help gilt-edged, but the Treasury will be tempted, if not propelled, into the market with another tranche of stock before much further favourable movement is possible. The dangers in buying ordinary shares are still significant, given the weakness of fundamentals which have not changed during the past few hectic days. However, if Mrs Thatcher does indeed become leader of the Tory Party and there is no wriggling out of the referendum commitment on the part of Labour, there should be a dramatic rise in the price of ordinary shares as opinion polls confirm that a majority wish to exercise their collective wisdom in unshackling us from Europe, so that we may make our own trade arrangements with the world.
In short, the market boom is anticipating a reversal of the collective madness that took us into Europe and the gradual rebuilding of a Tory Party so nearly destroyed by Mr Heath.
Previous page
