Paris: Euphoria on global stock markets might give the impression that the financial crisis is a thing of the past, but for unemployed workers or idling companies the effect of the turmoil is still keenly felt.
On the main equity markets last week, the Dow Jones Industrial Average hit its highest level in 2009 during the week, Tokyo’s main index added 5.8% over the week and the London FTSE rose 4.28%.
For many, there seems a disconnect between the optimism sweeping financial markets and the hardship felt in industry and the labour market where job losses, pay cuts and factory closures continue.
On Thursday, the Dow Jones gained 2.12% on a day when the US labour department said first-time claims for unemployment benefits rose to 554,000 the previous week.
“The general rule of thumb is that the equity market leads the economic cycle by six-nine months,” an analyst at investment bank Calyon, Daragh Maher, said.
In other words, investors are anticipating blue skies ahead and they are adjusting to the first signals of better weather.
Companies are much less responsive, meaning most people will continue to live under the thunderclouds of the financial crisis for some time—or at least until the final quarter of this year if equities bottomed in March.
“The initial phase of any downturn is that you fire people, then you stop firing people, then you start hiring again,” added Maher. “Companies are still in the phase where they’re still firing, but not quite as large as they were three months ago. I think it’ll be the middle of 2010 before you’ll see businesses being confident enough to begin rehiring in any great scale.”
A survey released on Friday backed up this view.
The poll, a Eurobarometer released by the European Commission, showed that two-thirds of Europeans believed that worse job losses were to come and one-third of those working said they were “very worried” about their job.
The good news for everyone—not just those who own shares or work in finance—is that there are genuine causes for optimism about the so-called “real economy” that underpinned the swing in the market mood last week.
An avalanche of company reports in the US showed most firms delivering generally better-than-expected results, with a recovering financial sector meaning credit should become easier to get.
But there are still plenty of reasons for caution. Since the eruption of the financial crisis, stock markets have staged a number of rallies that have faltered and only weeks ago the talk was of a weaker -than-expected recovery.
“The overall picture suggests that the road ahead won’t be bump-free and that the market may change moods with little notice,” noted analysts at Goldman Sachs.