Market Report: Weekend blues – or has the rally ended?

Have we seen a quick bit of profit-taking, or is the rally really over? Yesterday the FTSE 100 index lurched and lost 100.4 points – the biggest one-day fall since early November. The finish, at 6,246.84, was in contrast to Friday, when the Footsie ended the week on a near five-year high.

Was a bad weekend to blame? Most traders think the tumble is down to savvy investors booking profits after a stellar January – the benchmark index was up 6.4 per cent on the month, its third-best start to the year since 1989.

So what rattled the market yesterday? George Osborne played his part. Details laid out by Mr Osborne on banking reform and threats that the big banks will be broken up if they don't follow his strict rules on ring-fencing risky investments sent investors running for cover, and banking stocks dived. The sector was down by 2.2 per cent, having been one of the best-performing sectors last month, when it was up around 10 per cent.

Renewed fears about Europe certainly haven't helped either. Concerns over alleged corruption within the Spanish government have added to the distress. And the focus on Spanish bond yields sent investors fearing a repeat of last year.

A plethora of downgrades and some poor company updates didn't help matters, and also weakened the previously buoyant sentiment.

Toward the bottom of the index, the chemicals group Johnson Matthey got a downgrade from analysts at UBS and Citigroup. Citi rated it neutral with a share price target of 2,450p and the shares fell 83p to 2,243p.

Citi also took the red pen to Vodafone. The telecoms giant had been on the City's buy list recently after a series of upgrades from analysts accompanied M&A rumours. The chat around Vodafone focused on the possibility that it might sell its stake in its US joint venture, or that its partner Verizon could even make an outright bid for Vodafone to gain full ownership of the Verizon Wireless partnership.

The shares rose more than 10 per cent in January, but investors hung up on them yesterday, and they lost 2.95p to 170.5p as Citi's Simon Weeden reckoned they are no longer a stock to splash out on. He downgraded Vodafone to neutral "post rally" and gave it a 180p price target. Mr Weeden thinks sales pressure in Europe is an obstacle in the short term.

But traders, ever the optimists, reckoned the FTSE 100 will recover after this "temporary" blip, pointing to some strong company updates as evidence to lighten the mood.

The gold miner Randgold Resources was bucking the trend and glittered at the top of the benchmark index after revealing a full-year profit jump of 16 per cent. Its shares glistened at 6,275p, up 190p.

On the mid-tier index, rumours of a decision over the validity of Centamin Egypt's flagship Sukari gold mine contract helped the miner to add 3.75p to 64.15p.

The oil specialist Afren was boosted by rumours that it is looking at selling its interests in its oil fields in Kurdistan and east Africa. China's Sinopec has been rumoured to be interested, and yesterday it announced a HK$24bn (£1.97bn) share placing. Afren trickled up 2.1p to 156.1p.

Shares in Salamander Energy jetted up to the top of the mid-cap index, adding 22p to 208p after the company announced an oil and gas find in Indonesia.

Lovers of luxury thought the outlook for the sector was looking up after the Swiss brand Swatch reported a 26 per cent increase in 2012 profit. There are still fears that growth is slowing, particularly in China, but Swatch's update showed there were still signs of hope that China was improving and back on the FTSE 100, London's luxury player Burberry sashayed up 10p to 1,397p.

Morgan Stanley concentrated on the pharmaceuticals specialist Shire and gave it an overweight rating as it thinks the market is under-appreciating the opportunities it has in the global attention deficit hyperactivity disorder (ADHD) drug market. It gave Shire a 2,350p share price target, while Barclays scribes raised their share target to 2,350p. Shire recovered 18p to 2,153p.

The chief executive of the AIM-listed pharmacy software supplier Emis has retired after the group unveiled a profit warning last month, and the shares were off 57p at 693p.

A positive update from the minerals processor Berkeley Mineral Resources helped it to add 0.22p to 2.62p. It got the go-ahead for its copper-processing pilot programme in northern Zambia.

Buy

WALKER GREENBANK

Snap up Walker Greenbank, Seymour Pierce advises. The broker is enthusiastic about the wallpaper business because it has an "impressive track record… its brands are unique in the luxury furnishings market", and it is "impressed with the dynamism of the design team". The shares are 85.5p but it gives a target of between 90p and 100p.

Sell

TUI TRAVEL

Dump shares in Tui Travel, Panmure Gordon urges. The broker says that although the travel agent's "current trading is strong", its price-earnings ratio of 10.7 "is too generous given the group's five-year average forward ratio is 8.8". The shares are 297.2p a pop but Panmure gives a target of 245p.

Hold

LONMIN

Hang on to shares in Lonmin, Investec recommends. The broker says the platinum miner's quarterly update showed that its "ramp-up is proceeding well". However, as the company hasn't disclosed expenditures, "the balance sheet position is unclear until the May interim results". It raises its target price to 366p from 353p for the shares, which are currently 366.4p.

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