Well, have shares recovered from the worst excesses of the bear market – or is recent strength just another dead cat bounce?
There are indications suggesting that the worst of the slump is over. Conversely, it could be unwise to ignore the multitude of cautionary signals still urging investors to tread with extreme care.
It is the conundrum that has often confronted those whose wellbeing depends on the stock market. Others, who merely dabble in shares, are, of course, keen to know the answer.
At this stage in the game, it is impossible to produce a definite response. I have said that shares should stage something of a comeback this year although my hunch was that most of the action would occur in the second six months of 2009.
But, perhaps, it has already started. Despite some negative days, shares, blue chips to small caps, have made considerable progress, admittedly from a very low base. There will be good and bad days – indeed good and bad weeks – but I get the distinct impression that the stock market could be over the worst and possibly edging into better times. It is, however, unclear whether such activity heralds a full-blown revival.
Although a myriad of established indicators offer little comfort to the optimists, some do provide just a hint that happier days are nearer than many think.
It is away from all the statistical mumbo jumbo that, perhaps, the real clues are to be found. And the stock market, which often anticipates the direction of the economy, is offering a plethora of bullish signs.
The leading execution-only stockbroker TD Waterhouse reported a dramatic trading upsurge last week and it is rumoured that stockjobber Winterfood Securities was inundated with trades on one day recently. Other straws in the wind include the launch of a small-cap fund, record trading on Plus, still regarded as a small-cap market, and increasing confidence among experienced investors.
Bob Morton, a serial investor with a string of small-cap involvements including Clarity Commerce Solutions, the latest addition to the no pain, no gain portfolio, is an ex-bear who is now feeling bullish. Richard Plackett, the manager of BlackRock's UK Special Situations Fund, is another one making confident noises and so is the stockbroker Daniel Stewart.
All are small company specialists. Very often little'uns lead any revival. They probably will next time. After all, they led the retreat as many investors switched into blue chips in the vain hope that their investments would enjoy more protection. Plackett says shares are the "cheapest they have ever been" and points to investors focussing on recovery plays. The bear market is "effectively over", he declares. Daniel Stewart talks of business confidence on AIM, the junior market, being buoyant and suggests corporate activity is on the horizon.
Six months ago, a number of investment stars, such as veterans Warren Buffett and Anthony Bolton, forecast the slump was over. They got their timing wrong. But as I have often said, it is virtually impossible to call the turn of the stock market. Buffett and Bolton are probably now more geared to the top end of the trade. Perhaps small-cap players, such as Morton and Plackett, are nearer the real coalface. Certainly small-caps have performed quite well in recent times. And there is undoubtedly a refreshing air of (near) confidence swirling around the stock market undercard. Minor players are well placed to lead any revival as recovery tends to feed through to their bottom lines more quickly.
The recession has been brutal to small-caps. Indeed the very survival of AIM, created for smaller companies, has been questioned as constituents departed, many delisting or going bust.
I go along with the feeling that the worst of the slump is over although I am not convinced that a strong recovery is already under way. But the signs are more encouraging. And real progress could be near.
BlackRock has produced some interesting sums, underlining the attraction of small-caps. It says that £100 invested at the end of 1955, when the small-cap index first appeared, was worth an impressive £184,000 at the end of March. And that, don't forget, embraces the horrendous crash that has occurred since the summer of 2007. A general stock market investment of £100 over the same period is valued at £33,000.