Business Briefing: Will it all go to hell while you're away?

Bryce Elder asks if the City's rainmakers should really worry about going off in the midst of a dip
Click to follow
The Independent Online

The financial world's unofficial summer break starts in earnest this week, just as stock markets go into a tailspin and investor confidence ebbs away. Is it a safe time for the top executives to be spending more time on the beach than in the boardroom?

Doesn't the silly season only affect the newspapers?

For journalists, August is traditionally the quietest month of the year, when real news evaporates in the summer sun. But just as the parliamentary recess means the press is left writing about crop circles and killer wasps, the summer holidays can deprive the City and Wall Street of its most influential movers and shakers. Some deals are put on hold, while the financing of others becomes tougher to secure.

And with the office juniors doing the analysis and pressing the buttons, both buyers and sellers tend to behave a lot more cautiously.

Some traders also believe that, because the corporate rainmakers are no longer watching the shop, stock crashes are more likely in August.

Is there any truth to that theory?

According to the 'Stock Trader's Almanac', Wall Street has traditionally performed relatively poorly during the late summer compared with the rest of the year. Over the past couple of decades, August has been the worst month on average for the S&P 500 index and the second-worst on the Dow Jones Industrial Average and the Nasdaq Composite.

Nervous traders with long memories may also note that some of the market's biggest shocks have happened in late July and August, such as the East Asian financial crisis of 1997 and the collapse of hedge fund Long-Term Capital Management a year later. Even in quieter times, there can be signs of trouble that would not have gone unnoticed if more traders had been at their desks. Economists searching for an explanation for the "Black Monday" crash of October 1987 have argued that it was foreshadowed by tumbling bond prices two months earlier.

But the statistical evidence is far from conclusive. August is in fact the third-best month for UK investors, according to stock market statistician David Schwartz. He has argued that old assumptions on seasonality that have lasted for decades, such as the one about the FTSE notching up most of its yearly gain between November and April, have not held true since the turn of the millennium.

The only thing to say for certain is that trading volumes tend to fall off in the late summer months. That, in combination with a greater proportion of inexperienced traders who are unwilling to bet against the trend, can result in greater volatility for asset prices.

Is there anything to watch out for this time around?

Counter-intuitively, this year's silly season is set to begin with some rather serious news. No fewer than 25 British blue-chips are scheduled to release trading updates within the next five days, and eight more are pencilled in for the week after. Moreover, the latest Bank of England rate decision arrives on Thursday, to be followed a day later by a crucial set of non-farm payroll figures from the US.

This slew of market-sensitive information coincides with a period of deep uncertainty about where the FTSE and Dow Jones are heading next. Corporate bond risk has soared in the wake of the US non-prime mortgage crisis, while rising finance costs could stall the acquisition frenzy that has been a main driver of the four-year bull market.

All of which may prove unfortunate for those executives already packing their suitcases. So far, there have been no reports of yacht crews being disbanded or private jets turning back towards Luton Airport.

But it would take a brave soul to set off now without their Blackberry.

In the event of things turning nasty, is there anywhere we can direct the crisis calls?

It all depends how nasty it gets. Only fund managers need panic if the FTSE drops another couple of per cent, and they can be easily located around the marinas of southern France and Spain. If we see a double-figure drop, it may be sensible to put a call into the Sardinian island resort of Costa Smeralda, a popular hideout for the City's leading rainmakers and the chosen venue for Delta Two, the Qatari investment fund, to discuss its bid for J Sainsbury with Lord Sainsbury, an 8 per cent shareholder in the group.

Meanwhile, if there's a repeat of Black Monday, nervous readers may wish to note that the Prime Minister plans to spend much of August at his family home in Kirkcaldy.