Stock Market Week: Bears and bulls divided on whether to sell in May and go away

Shares have not started May with the stylish flourish optimists expected, provoking some investors to recall one of the stock market's more bewhiskered expressions - "sell in May, go away and buy again on St Leger day".

Over the years it would have been foolish to have persistently followed this advice as shares have enjoyed many a summer-time boom.

But the old adage has become part of market folk lore, surviving the advent of screen trading and sophisticated research. It dates from more leisurely times when wealthy private investors would instruct their stockbroker to reduce their portfolios before venturing to warmer climates for their long summer holidays.

They would be back before the St Leger was run at Doncaster which this year will be on Saturday, 14 September.

Shares have surrendered ground this month, despite last week's late rally, and with many strategists far from confident progress will continue there is growing support for the sell side of the adage.

Not much progress is expected next week with the possibility of higher US interest rates. UK rates are unlikely to move and the economic data on offer may not produce any excitement. The weakness of gilts remains a drag.

A few months ago many felt shares would run ahead strongly in the first half of the year, suffering a reversal in the second six months.

Ian Harnett at Societe Generale Strauss Turnbull is one of the more persistent bulls but has felt it wise to reduce his expectations, largely because of the increasingly tense political situation. So he has trimmed his mid- year and year-end FT-SE index forecasts to between 3,950 and 4,100 points.

Others still in the bull camp are Richard Jeffrey at Charterhouse Tilney with a year-end forecast of 4,000 and, to a lesser extent, Bob Semple at NatWest Securities with 3,800 for July, although he is shooting for 3,700 for the end of December.

Richard Kersley at Barclays de Zoete Wedd is looking for a year-end Footsie of 3,750.

Paul Walton and Edmund Shing at Goldman Sachs remain deeply bearish - 3,400 at the end of this year and next. The local elections have demonstrated Labour could comfortably win an absolute majority in a general election, which they expect next spring.

In the past foreign investors, which they estimate account for 16 per cent of UK equities, have been hesitant about Labour and there is the clear danger they could turn sellers ahead of any Labour victory.

US investors, they believe, are currently overweight in London, particularly in drugs, telecommunications, banks, media, leisure, food and conglomerates. Among the groups with big US shareholdings are British Petroleum, Hanson, Reuters, SmithKline Beecham and Vodafone.

Hanson, due to be split into four, is one of the groups reporting this week with interim figures on Thursday.

The demerger is seen as signalling the end of the conglomerate philosophy. The idea is that Hanson will be stripped down to its building and electrical operations, with tobacco and chemicals hived off into separate companies by September and energy by the end of the year. The great demerger has been accorded a luke-warm reception, with Hanson shares still a long way from the 252p of a year ago.

The market has been struggling with break-up valuations: the more optimistic estimates stretch to around 230p. The weakness of the shares underlines the market's uncertainty about the whole exercise.

There have been persistent rumours that tobacco, the old Imperial Tobacco Co, will not reach the splits stage. BAT Industries and assorted US groups are said to be interested in pre-empting any demerger by buying the company.

This month Hanson added to the demerger intrigue by selling its 12.5 per cent shareholding in the National Grid at, many believe, a surprisingly low price. There is speculation about the ultimate ownership of the stake. Thursday's figures are unlikely to create excitement - a fall from pounds 633m to around pounds 610m is the popular guess.

Grand Metropolitan, a sprawling conglomerate which has already slimmed, also offers interim figures on Thursday. In recent years the group, largely involved in food and drink, has disappointed. Profits are expected to be little changed at around pounds 445m and, NatWest believes, largely irrelevant.

Say analysts Michelle Proud and Graeme Eadie: "Because first-half numbers are expected to be broadly flat, a strong second half is required to meet expectations for the full year". The market, they say, needs a positive trading statement particularly from the drinks side which has already said its first-half contribution will be down.

Another poor performer, Allied Domecq, will roll out interim profits tomorrow. A fall from pounds 399m to pounds 324m is expected. The full year's figures are likely to be pounds 580m against pounds 635m and some fret about a dividend cut.

It has long lagged behind other big drink groups and acquired the unenviable reputation of being accident-prone. Its pounds 147m foreign exchange fiasco and the timing of its pounds 700m-plus Pedro Domecq acquisition linger in the memory.

But there are hopes new chairman Sir Christopher Hogg will soon make an impact. He will struggle to have any quick influence on trading.

One of the possibilities he is likely to consider is a Hanson-style demerger with Allied split into stand-alone retailing and spirit operations.

Allied has been cutting back; it has largely sold its food division and providing there is not yet another Whitehall U-turn could soon complete the sale of its struggling Carlsberg Tetley brewing operation, which it owns with Carlsberg of Denmark, to Bass.

Ill-starred British Gas offers quarterly figures - look for pounds 660m against pounds 605m - and British Telecom, with Cable & Wireless again an elusive dream, should produce year's figures of pounds 2.96bn against pounds 2.66bn.