Richard Moore, manager of the Santander UK growth fund, Santander Asset Management UK, said: "The rise to 5000 on the FTSE100 means that the market has rallied in excess of 40% since the low point reached in early March 2009. Economic growth across the world has been picking up in response to unprecedented levels of Central Bank stimulus and looking ahead there are two reasons for investors to remain hopeful that the rally can continue, at least in the short term.
"The first is that there is no sign of inflationary pressure picking up meaning that Central Banks can continue to inject liquidity into markets. Indeed, on Thursday, the Monetary Policy Committee left the UK Base Rate at 0.5% and announced its commitment to continue its policy of quantitative easing, a policy that would have to be reversed if inflationary pressures begin to mount.
"It is likely that inflation will only begin to rise once unemployment begins to fall and wage growth starts to pick up, and unemployment is likely to continue to rise for some time yet. Economic growth with low inflation has historically been a so called ‘sweet spot' for equity markets.
"The second reason to feel confident is the implication of the Kraft bid for Cadbury that took the markets completely by surprise on Monday morning. Blue chip FTSE100 stocks do not normally rise 40% in a single morning on news-flow that has been even vaguely discounted. Investors were clearly shocked and the bid represents £10 billion worth of corporate confidence in the future as well as highlighting just how undervalued some stocks have become, placing a floor under valuations. The fact that the offer is a mixture of cash and shares is an indication that the credit crunch may be behind us now.
"Despite the optimism of these two points, ultimately everything will depend upon the consumer. Central Banks have provided the liquidity but it is up to the consumer to spend rather than save and there is little sign of this happening yet. However, the good news is that stock markets are discounting mechanisms that ‘climb walls of worry' and looking ahead this should continue to be the case."
