Stock Market Week: New York's one-day dive offers consolation to long-term bears

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The Independent Online
At last the bears have had something to sink their teeth into. Last week New York suffered its sharpest slide of the year, sending the predictable ripples of unease through the stock market.

Yet Footsie's decline was far less dramatic, even before Wall Street recovered its nerve, than many thought likely. After Friday's recovery it had fallen a mere 20 points from an all-time high of 4,444.3. Such a reaction would suggest the slump so many anticipate will be further delayed despite the looming election.

Record-breaking runs, of course, have to end some time. And many believe that the marathon bull market, the longest ever, is set to crack.

Tony Dye, the PDFM fund manager, has already staked his reputation and his clients' cash on a crash and must be growing increasingly embarrassed by the recent levels shares have achieved.

And David Schwartz, who describes himself as a stock market historian and has long been forecasting a bloodbath, says: "Given current stock market conditions, we believe the typical buy-and-hold investor is best off in a building society savings account."

In many City offices a strong opening for the year was predicted. Legal & General forecast Footsie reaching 4,400 points in the first quarter.

If the rest of the L&G forecast is correct the index will tumble to 3,800, ending the year at 4,000.

NatWest Securities remains the City's arch-bull. It looks for a year- end level of 4,600.

Even so it is uncertain about the next few months, suggesting Footsie at 4,200 in May. Richard Jeffrey at Charterhouse Tilney, whilst shooting for 4,400 in the summer, sees a year-end 4,000. US investment house Goldman Sachs has a 12-month target of 4,260.

Bob Semple and David McBain, the NatWest strategists, believe that 5,000 is "not unthinkable over the next 12 months".

They add: "While we are unrepentant bulls for the year as a whole we are nervous that the market has run too far, too quickly in the short term and will be stopped in its tracks by either domestic political worries or a sell-off in the US bond market over the next few weeks".

Mr Schwartz is convinced past trends are signalling the next important move will be downwards. But times change and history has a habit of not repeating itself.

Still elections invariably unsettle equities. One of the big surprises this year has been the blissful indifference shares have so far displayed about the nation's trek to the polls.

But as the inevitable election draws closer the market should become more volatile.

And, as Mr Schwartz points out, when a Prime Minister's rating is low - and John Major is hardly riding on the crest of a wave right now - shares fall in the election run-up.

Many observers feel a Maytime Labour victory is already factored into prices and that a change of government will be received with barely a twitter.

But Mr Schwartz is not so sure. The five elections since the war which shifted power have been fairly close-run contests and a narrow Labour victory could unsettle the Blair spending and tax plans.

Another fascinating historical fact is that elections and bear markets go hand-in-hand.

Mr Schwartz comments: "In the second half of this century there were 10 elections either won by Labour or the Conservatives by a small margin.

"On six of these occasions a bear market started within 100 trading days on either side of election day.

"Two other elections took place in 1974 in the midst of the worst ever bear market. One more election, in February 1950, occurred just after the bear market of 1947-49 smashed prices by 32 per cent.

"Only one of the 10 elections was not closely associated with a bear market - Heath's 1970 win. There are no guarantees for 1997, or course, but history strongly warns that poor trading conditions may soon begin."

There is no doubt interest rates will be forced higher this year; indeed fears of dearer money prompted New York's slide.

A Labour win, by whatever margin, could also encourage a run on the pound. After all Tony Blair may - or may not - have won over the City but the sight of Labour ministers striding the Westminster corridors of power may not go down well with many overseas investors.

In what could be a volatile week for the market investors will, perhaps, find the vast array of company results providing a rewarding distraction.

Guinness, Kingfisher, Pearson and Wolseley top the list.

The drinks group is expected to roll out another flat set of figures with NatWest Securities going for pounds 956m, up from pounds 940m. The trading statement could, however, offer a wee dram of encouragement.

For there are signs the disastrous Spanish beer adventure is at last producing a profit, albeit a tiny one in relation to the pounds 900m poured into the enterprise, and for the first time for years US spirit sales rose in 1996.

The Japanese pledge not to discriminate against imported spirits and the success being enjoyed in Thailand, now Guinness's second most profitable spirits market, are other favourable influences.

More attention will also be paid to Pearson's statement than figures, around pounds 270m against pounds 235.7m.

The new chief executive, Marjorie Scardino, may outline the group's media strategy and there is already talk that the Tussauds waxworks and the Lazards merchant banking interest will be earmarked for sale.

Kingfisher is expected to achieve a jump from pounds 287.2m to pounds 380m and Wolseley to move modestly from pounds 111m to pounds 121.8m.

Among others reporting are Argos, which has just lost its Footsie status, and English China Clays. The catalogue stores chain should manage pounds 140m against pounds 124.4m and ECC is expected to suffer a fall from pounds 96m to pounds 57m and cut the dividend; 16.7p was paid last year.

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