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Why I think this FTSE stock market rally could go further than we think possible

As I’m writing, the FTSE 100 is tearing up. And it’s smashed through 6,500 again.

Indeed, London’s lead index is just around 15% below its level before the coronavirus crash. And it’s not the only buoyant market in the world. We’re seeing similar strength in the USA, Germany, France, Japan, Australia and many other places.

This FTSE stock market rally looks set to continue

Some investors have been sitting on the sidelines scratching their heads. And I can understand that attitude. How can the stock markets be so lively when we face the ongoing coronavirus pandemic and damaged economies because of lockdowns? Indeed, reduced revenues and profits look certain for many companies, at least for a while.

One big fear is the rally could be short-lived, and we may see another crash in the stock market. However, there’s a strong argument that a second crash may not happen. So, if you have been waiting for shares to drop back again before buying, you could be disappointed.

The stock market is good at looking ahead. And right now, I reckon it’s trying to predict where businesses will be with their trading a few months in the future. It’s looking past where they are now. But is that the right thing to do? I reckon so.

To begin with in this pandemic, I was worried that people may shun some of the things they did before. I wondered if fear of the virus might play a part in that, along with changing attitudes. Indeed, the lockdowns have encouraged us to reassess what’s important in our lives.

Pent-up demand

But seeing the queues for McDonald’s drive-throughs, KFCs and other retail outlets that have already reopened has caused me to change my mind. I now believe people will return to all the things they’ve missed in lockdown as soon as they can. And, to me, that means many businesses could see their revenues recovering faster than many imagine.

And that’s what I think this FTSE stock market rally is ‘telling’ us. Meanwhile, ex-Dragons’ Den personality and successful investor Richard Farleigh said something interesting in his book Taming the Lion.  He reckons that trending markets tend to move much further than we ever expect. So I think the current rally will run for a long time.

One thing that could help shares keep rising is the low-interest-rate environment and all the financial stimulus governments are throwing at economies. And if we stay out of shares because we fear a second crash in the markets, we could miss out on some decent gains.

My guess is that with all the experience gained in this pandemic, governments will control any potential second wave. So I’d say ‘right now’ is a good time to research and buy shares in strong, good-quality businesses. And there are plenty to choose between listed on the London stock exchange.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.