A Christmas spree looks unlikely but next year could see a strong run

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The Independent Online
A correction or the start of a long bear run? Since Footsie peaked early last month it has fallen 575 points; at one time it was down more than 900 points. So, as corrections go, the present setback is considerably more than the average decline, generally regarded as 12 per cent.

Although there is a deep well of opinion that shares will have a good run next year, even the more bullish strategists are uncertain about the remaining weeks of this year. Indeed the traditional Christmas spree, when shares enjoy a festive advance, does not appear to have been factored into many year-end calculations.

Allan Collins, at stockbroker Redmayne Bentley, believes the worst of the correction may be over but we have yet to see the end of it.

The slump has resurrected one of the less appreciated stock market wisdoms - buy in the autumn and sell in January or May. Behind this strategy is the theory that money is often tight in October and November because of tax demands. The tendency for crashes to occur in October is seen as lending support to this view.

If the remaining weeks of this year are the wipe-out many think - although I would not write off a heady sprinkling of Christmas cheer - there is strong underlying support for next year's more optimistic scenario.

Few of the usual bear market factors are in place. Cash levels are high, equities look cheap relative to gilts and interest rates, even if the new Monetary Policy Committee is trigger-happy, should be near their peak.

It will be interesting to see whether the arch-bears, the Gartmore, Mercury Asset Management and PDFM fund management groups, will be tempted into the market. After missing out on this year's run - Footsie started at 4,115.7 - they could decide more selective garnering is justified.

Significantly the fund management community, according to the Merrill Lynch monthly survey, has turned bullish. Merrill apparently found buyers outnumbering sellers by 10 per cent, the strongest equity-buying interest fund managers have displayed for more than two years.

Fund manager Brian Banks of Guildhall Investment Management is not at all downhearted. Footsie above 5,000 looked "a bit excessive". But he thinks the market is now fully supported: "I am not a seller; if you have decent shares you hold on to them."

Chartist Richard Lake at stockbroker Brewin Dolphin Bell Lawrie, is another who feels shares have peaked for the time being. He points to the Footsie distortions created by the new order-driven share dealing system. It has exacerbated the correction "and also suggests that any bear market is more likely to be over quickly than prolonged".

The respective behaviour of New York, which leads our market, and Britain's growing army of private investors represent imponderables.

Wall Street, by common consent, is overvalued. The US weight of money could keep it on the upward path; there are strategists who think a Dow Jones Average at 9,000 points is likely in the next few months. Others fret about a period of consolidation as events catch up with shares, or even a gradual decline as shares are adjusted to historically more realistic ratings.

In this country many private investors are still, despite recent falls, sitting on handsome profits. So far they have displayed remarkable poise, refusing to be panicked out of their investments. If their nerve holds, and I believe the growing sophistication of private investors, even the Sid element, is not fully appreciated, the eroding trickle of small sales will not materialise.

There is also the turmoil in Far Eastern markets and the relentless decline in Japan. Although the knock-on effect should not be ignored it is easily over-estimated.

A wide array of companies are due to report this week, including some of Britain's renowned heavyweights.

The strength of sterling and reorganisation costs are set to devastate the interim profits of British Steel today. Around pounds 100m is expected against pounds 262m last time. Year's results from the BOC chemicals group tomorrow will be dull, say pounds 440m against pounds 444.9m, but Vodafone should dial up a pounds 310m half-year figure against pounds 235.2m.

On Wednesday the Courtaulds chemical group could produce pounds 57m against pounds 64m for its six-months offering, and utility Hyder is likely to report interim profits of pounds 110m. up from pounds 101m.

Safeway, the supermarket chain is expected to check out with little changed interims of pounds 230m and Thursday should see Storehouse on pounds 38.3m (pounds 37.5m).

Granada, still absorbing its Forte swallow, should show reasonable growth on Thursday with year's figures of pounds 645m against pounds 483.6m.

The generators are also in the frame. On Wednesday National Power will not light up the market with lower interim figures - say pounds 245m against pounds 251m. PowerGen, on the following day, will at least have the satisfaction of achieving a plus; around pounds 150m at the halfway mark against pounds 138m.