Investor: The old stock market adage of "sell in May and go away" would not be paying any dividends so far over the summer of 2003. The share price recovery that gained strength over the second quarter maintained momentum in July.

Global stock markets rose impressively over the month and, notably, Europe began to play catch-up with the US equity market.

The S&P500 index, considered to be the key barometer of conditions in the US equity market, rose by 1.6 per cent in July. However, the 3.9 per cent rise in the FTSE Eurotop300 index and the 3.1 per cent rise in the UK's FTSE100 index bettered this.

Nevertheless, on a year-to-date basis, US markets are still well ahead of their European counterparts with the S&P500 up by 12.6 per cent compared with the gain of 3.9 per cent from the Eurotop300.

Happily for Irish investors, the ISEQ Overall index has performed very well in a European context with a year-to-date gain of 10.5 per cent after rising by 3.1 per cent in July.

It is probably fair to say that the strong rise in share prices during the second quarter was primarily driven by relief at the quick end to the war in Iraq. Furthermore, share prices were coming off a very low base after almost three years of a relentless decline in equity prices.

The same cannot be said about the further gains in July, which have occurred against a backdrop of some definite improvements in global economic prospects. In the US, the first estimate of GDP growth in the second quarter was a stronger than expected 2.4 per cent (annualised). This report served to confirm the improving trends emerging from the regular monthly data releases. Short-term interest rates at 1 per cent and an expansionary fiscal policy do now seem to be underpinning a sustainable expansion across the US economy.

However, the economic data are by no means all one way. The most recent employment report from the Department of Labour concluded that the US labour market remained weak in July. Non-farm employment fell by 44,000 during the month, making it the sixth straight month of job losses.

Since February, the US economy has lost 486,000 jobs and the employment rate now stands at 6.2 per cent. Most economists view employment/ unemployment statistics as a lagging indicator of activity and therefore continued weak labour market conditions can coexist with an improving economy, at least for a short period of time.

Within the second-quarter GDP report, one of the most hopeful signs of better times ahead came from the news that business investment grew at an annual rate of 7 per cent in the second quarter. This is the best rate of growth since the start of the bear market in early 2000. The report also showed that spending on offices, factories and other structures grew for the first time since the fourth quarter of 2000.

This official confirmation of a tentative turnaround in business investment is consistent with statements emanating from big business. S&P500 companies have reported second-quarter financial results that were generally better than market expectations.

Although company statements regarding future prospects were cautious, there was a perceptible improvement in business sentiment compared with those gloomy first quarter statements. Also, a survey of executives by the Business Roundtable, an association of chief executive officers of leading US companies, showed that expectations regarding sales growth improved in the second quarter compared with the previous three months.

Another sign of an improvement in US business conditions comes from the sudden reappearance of mergers and acquisitions, and initial public offerings. These improving trends evident in the US economy have partially crossed the Atlantic and there are definite signs that the European economy has at least stabilised.

In recent years the European economic cycle has tended to lag that in the US. Therefore, if the US economy gains traction during the second half of this year, it is likely that the Eurozone will enjoy some economic recovery in the first half of next year.

Already there are signs of stabilisation in Europe and there is clear evidence of a perceptible improvement in consumer and business confidence.

The statistics for the Irish economy paint a somewhat confusing picture regarding how bad the economic slowdown has been given the often wide discrepancy between GDP and GNP measures of growth. However, if the comparative performance of the Irish economy is to be judged by the employment data then the economy has held up remarkably well throughout the global slowdown. The Irish unemployment rate has risen modestly to 4.8 per cent from 4.2 per cent last year and this compares with the current euro-zone average of approximately 9 per cent and the US unemployment rate of 6.2 per cent.

If economic conditions in the US and Europe do improve over the next year, this should feed through to the Irish economy. This would be good news for the Irish equity market and in particular for those quoted companies that derive a high proportion of their profits from the domestic economy.