Stock Market Week: Footsie's retreat heightens fears that the bull market is over

Footsie was in ragged retreat last week, prompting the inevitable worry that the long-running bull market had finally expired.

In four days the blue chip index fell 83.6 points to 4,817.5. It is now 269.3 below the peak achieved early last month. At the start of the year Footsie was at a then high of 4,118.5.

Its relentless progress since then, produced against a chorus of bearish comment, caught experts on the hop. In January, a Footsie standing at 4,600 points by the year-end was the most optimistic forecast on offer. Naturally adjustments to predictions were made as the year progressed and it is currently not difficult to find forecasts suggesting Footsie will end December at least at 5,000. It would not be surprising if the optimists are now suffering gnawing spasms of anxiety.

During its run this year, the stock market has absorbed all the expected problems, such as rising interest rates, inflation and the impact of a rampant sterling, as well as the uncertainty created by the election and change of government. If the market was going to suffer a major hit after all this, then the blow would have had to come from an unexpected quarter.

As it happened, few had factored a Far Eastern storm into the equation. Currency turmoil in Thailand had hardly been noticed. Suddenly the currency and share markets of the Tiger economies are in disarray and just what sort of impact their discomfort will have on western markets is occupying City minds.

As Robin Griffiths and Fiona Bolt at HSBC said recently: "The end of a bull run comes like a thief in the night".

So is it all over? Have shares peaked and the likes of Tony Dye, the PDFM fund manager who piled into cash after banking on a share crash, at last going to be able to catch up after missing this year's equity party?

"Red" Dye is not the only fund manager to be wrong-footed by the strength of the market. He attracted attention because he adopts a high profile and displays a refreshing candour in discussing his views. Many other fund managers have privately voiced the opinion the market is far too high. Indeed they could be heard saying so when Footsie was 4,400. Naturally enough the rarefied altitude of nearly 5,100 left them looking exceedingly embarrassed and their portfolios, no doubt, the subject of urgent discussion with their trustees.

The Asian crisis could quickly blow over, although some observers are intent on producing a doom and gloom scenario. Seemingly powerful upsets in distant parts have a habit of fading. There has, as yet, been no evidence of nervous selling in London and price movements have often, for reasons best known to market-makers, been exaggerated.

New York, as always, holds the key. To some extent the rest of the world has to meekly trot along the route adopted by the biggest market of them all.

New York is closed for Labor Day today. Ahead of the resulting long weekend, there was clearly a reluctance on Thursday and Friday to get too deeply involved; so the extent of the American reaction to the Pacific problems has yet to be quantified.

It is likely that after a modest hiccup, London blue chips will settle down, even if they do not resume the heady progress they have achieved this year. Still, it must not be overlooked that the tenth anniversary of the 1987 crash occurs next month. It could be a nervous time. On the other hand, there is no reason to believe shares will not enjoy their traditional roll in the Christmas run-up.

Interest rates and other economic and political influences permitting, a Footsie standing around the 5,300 mark in a year's time looks a realistic expectation.

And there are unusual straws of hope in the wind. For example, Mark Tinker at UBS believes the Budget removal of tax credits could provide a spur to the market, with the ACT changes possibly prompting a deluge of share buy-backs.

"With the present low value of gearing it is possible to enhance shareholder value by adding debt and buying back equity," he says.

"The amounts involved are potentially staggering. Were the UK to move to the same level of gearing as, say, Continental Europe or the US, it would imply over pounds 100bn of share buy-backs."

In this country, companies are on average 30 per cent geared compared with more than 60 per cent in America and on the Continent. He believes the ACT change could push companies towards taking on more debt and thereby the advantages of debt tax breaks. "Interest payments can be offset against corporation tax, dividends cannot," he points out.

The main beneficiaries of share buy-backs are large groups, say the top 350. The rest of the market would probably react with splendid indifference to any such move. The small capitalisation companies seem, at least for the time being, to be unable to pick themselves up, no matter what the incentive.

The supporting FTSE 250 index and the FTSE Smallcap index have both missed this year's equity party and even the relatively modest enthusiasm displayed early last month has since been snuffed out.

A busy reporting schedule this week stars Burmah Castrol, Hillsdown Holdings, Jefferson Smurfit, JD Wetherspoon and Schroders.

Burmah is one of sterling's casualties and the strong pound will take the shine off interim figures, due today. Net income little changed at around pounds 68m is the guess.

Like the rest of the packaging and paper industry, Smurfit has found the going tough and interim results down from pounds 126m to near pounds 50m seem likely.

Hillsdown will have experienced flat food profits but should have scored on the house-building front. A modest overall interim improvement to pounds 53m is expected.

High-flying pub chain Wetherspoon should serve up year's profits of nearly pounds 18m against pounds 13.1m before, and Schroders could produce an interim result of pounds 130m, up from pounds 115.9m.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
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: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee