The stock market rollercoaster high and lows of Monday and Tuesday resulted in a surge in trading activity from investors, with trades doubling in those two days alone, according to the latest figures from TD Waterhouse.

Angus Rigby, chief executive at TD Waterhouse, says, ‘Most activity centred on banking stocks, which accounted for over two-thirds of the stock bought and sold as intra-day trading gained pace during the 48-hour period.

‘The appearance of iShares FTSE 100 in our top buys may have been a sign that some investors were taking a more cautious approach. These stocks track the entire FTSE 100 and are generally seen as a lower risk investment that would normally appeal to novice investors.’

According to the stockbroker, traders who bought iShares FTSE 100 earlier this week have already seen a return on their investment.

However, investment strategist at ABN AMRO, Joost Van Leenders, believes many economists are still too optimistic.

He points out, ‘Key indicators suggest that confidence levels in industry are at historic lows, the labour market is being squeezed and consumers are having to tighten their belts. We assume there will be a recession, and if investors do likewise, they would do well to be cautious with equities.’

According to Van Leenders, the stock market has not yet recognised the ‘looming storm’, with many economists still underestimating the chance of a recession, despite the S&P 500 Index falling below 1,400 points on 8 January – more than 11 per cent below the level in early October.

‘What we have seen is a correction, not the kind of bear market that can typically occur in a recession,’ he says. ‘In the 1990s, for example, equity indices fell by 24 per cent, while in 2000 to 2003, they fell by no less than 52 per cent. And those were mild recessions.’