THE optimism from a couple of weeks ago has so far failed to materialise into continued recovery in the stock market.

The dynamics of the market have changed somewhat recently.

A month or so ago, the release of bad economic news was largely being ignored and good news pounced upon. Of late, it is the good news being largely ignored as having been expected, and it is the bad news that is moving markets more vigorously.

This is largely down to the speed of economic recovery, or lack of speed. It is still fair to say, though, that in general, the news is of a positive slant.

Given Britain’s love affair with property, it is of little surprise that every snippet of news on the troubled sector is a barometer as to whether the economy has turned a corner or not.

The recent news flow suggests that the green shoots do have roots.

The latest figures from the British Bankers’ Association show that mortgage approvals were up by 15.8 per cent last month, ending months of decline.

Housebuilders have also signalled that their woes may be close to an end.

Taylor Wimpey has just announced that its order book had increased 73 per cent since the year-end, and that it is hunting for land.

It is not the only property company in a proactive mood. Having successfully weathered a Saudi group being forced to sell its major stake, upmarket housebuilder Berkeley is in the frame to buy a £20m-plus site in Belgravia, London.

These reports should not be overlooked. Berkeley boss Tony Pidgley has a reputation of calling the property market successfully, including the more severe previous property crash of the Nineties.

Possibly the biggest reason for hopes of a booming stock market this year is the fact that last year was so dire. In fact, the calendar year 2008 was the second worst year on record in terms of stock market returns in the US and the UK.

In the US, only 1932 was worse, and in 312 years of history of the UK stock market, only 1974 was worse.

Those old enough to remember 1974 will remember the previous year’s oil crisis, which lingered and indirectly fed through to a property crash in 1974. The UK stock market tumbled by 55 per cent in 1974 and, with dividend payments included, investor returns were down 52 per cent. National debt rose to four per cent of GDP, which seems small beer by comparison today.

The following year, 1975, however, produced the bestever stock market recovery, with investor returns of 152 per cent. The mood at the time, though, was hardly conducive to such a recovery, but often this can be a case of things cannot get any worse.

While it is useful to look backwards to give perspective, it can also cloud one’s judgement. The Bank of England has acknowledged that the strength and depth of the recovery are uncertain.

The key to further stock market recovery is first a revision to earnings estimates. These are the profit figures analysts expect companies to make.

Secondly, the earnings figures themselves will need to improve. The old fashioned valuation method of price/earnings is likely to return to being in vogue.

*Anthony Platts is a divisional director in the Teesside office of Brewin Dolphin, and can be contacted on 0845-213-1340. All prices quoted in the article are from public sources. The views expressed are not necessarily held throughout the Brewin Dolphin Group. You should bear in mind that no investment is suitable for all circumstances and it is important to seek expert advice if in any doubt.

Brewin Dolphin Limited is a member of the London Stock Exchange, authorised and regulated by the Financial Services Authority.