Pessimists ready to have their day

Are we in the dying days of a bull market? It certainly feels as if we are, as we enter the dog days of August, and torpor overhangs the market.

On Friday, following in Wall Street's footsteps, leading shares lost 1.5 per cent, or 76.9 points off the FT-SE 100 index, which closed at 4901.1. Although another substantial fall, optimists would point to the fact that the market eventually ended ahead of where it started the week, after the even more precipitous declines of the previous Friday.

Yet is it just Wall Street that should be exercising our minds? For the determined gloomster, there is plenty of evidence accumulating that things are not well. How else should we read the news that British consumer spending has reached its highest level in nine years. In the second quarter, consumer spending rose by 1.5 per cent - the fastest rate since the last boom of the mid-to-late 1980s.

This is, by any stretch, bad news for the medium term. Once again the economy seems poised to undergo the classic British phenomenon, boom to bust in three easy stages: consumers go spending-crazy as more money comes into their pockets, interest rates rise, and suddenly businesses and individuals find they cannot afford their loans. At least on this occasion, the politicians can say, up to a point, that they are not to blame. This time round, the money comes to a great extent from the conversion windfalls.

Even so, this is little consolation to the perennial gloomsters among us. A rosy period of expansion will prove unsustainable, blighted by rising interest rates and, in this instance, a strong pound. As one economist once put it, never underestimate the capacity of the British economy to disappoint.

Coming back to the market, it seems clear that consumer spending - and some other uninspiring economic data - is the real bogey for the stock market. It would be hard to imagine a clearer sell signal.

Last week witnessed some of the more determined share buying by company directors, as the board of Ulster TV piled into their stock. The reason is that the company is on the receiving end of a hostile bid from Scottish Media, owner of Scottish Television, and the Herald newspaper.

Between them, the directors bought 4.36 million shares at 210p - roughly 8.3 per cent of the company. No one could accuse them of failing to put their money where their mouths are - which must at least be some consolation to investors in the group. The bulk of them were bought by John McGuckian, a Northern Ireland businessman who is Ulster's chairman, who added 4 million shares to his holding.

It is good to recall a recommendation from this column of a little over a year ago, in April 1996, when we said shares in Rentokil were a sell. The group, since renamed Rentokil Initial after it won its bid for services conglomerate BET, would find it hard to sustain the record of 20 per cent annual growth. Immodest to crow it may be, but from December of last year, the shares have gone nowhere - while the rest of the market has soared. It is perhaps still too soon to say for sure if the glory days are over, but there are too many doubts to suggest the shares are the buy they were five years ago.

On a potentially more profitable note, Sherwood International, a software supplier to the life insurance, pensions and reinsurance sectors, looks to be making some useful progress. Its AMARTA software has had its first sale in the US, to Northwestern Mutual Life, with two further sales notched up in South Africa. This may sound like small beer, but the US market is enormous, and the sale came through a prestigious computer consultant, which only sells to the top 200 institutions.

The group's record over the past eight years is patchy, but in the last two years, the dividend has grown 87 per cent and 20 per cent, with a further 20 per cent hike at the halfway stage just gone. Margins are also improving, and there is good reason to suppose there is further upside to come.

By the end of the year, it would be fair to expect the operating margin to have reached 8.6 per cent, from 6.6 per cent at the time of the interims. The shares, however, trade on the very reasonable level of 15.6 times current year earnings, and 12.7 times 1998 earnings.

RICHARD PHILLIPS

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
Russell Brand discusses Trident and the NHS in an episode of the The Trews.
news
News
The cartoon depicts the UK (far left) walking around a Syrian child refugee
newsIn an exclusive artwork for The Independent, Ali Ferzat attacks Britain's lack of 'humanity'
Life and Style
tech
Arts and Entertainment
film
Sport
footballManager attacks Sky Sports pundit Jamie Redknapp after criticism of Diego Costa's apparent stamping
News
video
Life and Style
food + drink
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

Recruitment Genius: Web Developer - PHP

£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

Ashdown Group: Client Services Manager - Relationship Management - London

£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Credit Controller / Customer Service

£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

Day In a Page

Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness
Homeless Veterans appeal: Homeless in Wales can find inspiration from Daniel’s story

Homeless Veterans appeal

Homeless in Wales can find inspiration from Daniel’s story
Front National family feud? Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks

Front National family feud?

Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks
Pot of gold: tasting the world’s most expensive tea

Pot of gold

Tasting the world’s most expensive tea
10 best wildlife-watching experiences: From hen harriers to porpoises

From hen harriers to porpoises: 10 best wildlife-watching experiences

While many of Britain's birds have flown south for the winter, it's still a great time to get outside for a spot of twitching
Nick Easter: 'I don’t want just to hold tackle bags, I want to be out there'

'I don’t want just to hold tackle bags, I want to be out there'

Nick Easter targeting World Cup place after England recall
DSK, Dodo the Pimp, and the Carlton Hotel

The inside track on France's trial of the year

Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
As provocative now as they ever were

Sarah Kane season

Why her plays are as provocative now as when they were written
Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

Murder of Japanese hostage has grim echoes of another killing

Japanese mood was against what was seen as irresponsible trips to a vicious war zone
Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore