A Spring tide can burst its banks

Returning home after a three-night trip to London, there was a definite sense of spring in the air. Balmy temperatures, at least relative to Friday, the first snowdrops peeping through under the hedgerows, last week’s snow receding, and the ability to walk from car to front door without crampons. It all contributes to an upbeat mood.

The market’s mood is similarly optimistic. It feels buoyant. The ‘footsie’ is at a six-month high. There is bid action.

The Greek crisis may be toying with the market’s satisfaction, if to no-one else’s. There is even talk of first-time buyers being able to get mortgages again.

Rather like the old Cumbrian farmers in my village who greet any improvement in the weather with a weary comment along the lines of ‘we’ll pay for it later’, there is no shortage of naysayers in the ranks of professional pundits.

They point variously to the experience of Japan with its many false dawns in the last two decades, to the cyclically adjusted PE ratio and other indicators that might indicate that the recent rise in the market is simply the prelude to even nastier setbacks than we have experienced before.

I find it hard to pinpoint why I feel views like this may be mistaken. But the action of FTSE100 since the start of the year might provide a clue. A lucky 13 of the footsie’s top performing constituents have risen 20% or more since the start of 2012.

It’s natural that mining stocks should be up there, given the recovery in precious metals prices and also the Glencore/Xstrata situation. But perhaps more significantly, the top three performers are all banks, and the tenth best riser is Aviva, which has shown a stunning rise since its low point below 300p last year.

At this juncture, it’s worth keeping in mind that financials are traditionally the first sector to lead off a bull market rise, according to theories of sector rotation during market cycles.

I also draw a certain amount of comfort from the fact that Intercontinental Hotels is also up there among the top performers, as are old-established engineering names such as IMI and GKN. Even International Consolidated Airlines (IAG) (the BA-Iberia tie-up) is well up too (close to a 20% rise versus the footsie’s modest 7% gain).

What the gain in shares like this suggests to me, while it’s partly caused by a rebound in hitherto quite depressed stocks, is that growth is resuming in the global economy, possibly led by a revival in the USA.

Recent data seems to hint that this is so. Banks, insurers, hotels and airlines are all either traditional bull market leaders or bellwethers for some sort of cyclical economic revival.

It may all come to nothing, or it may simply be a response to special one-off factors, or it may simply be a ‘relief rally’. But my instinct tells me that there is more to it than that.