Stock Market Week: Footsie fails to shake off its summertime blues make

IT HAS so far been a depressing summer for shares - at least for the blue chip variety.

Since peaking at 6,620.6 points in July, Footsie has slithered and slipped in dull, occasionally tense trading. It closed on Friday at 6,180.8, representing a 6 per cent fall in the past month but still nearly 5 per cent above the level it started the year.

Yet as blue chips have wilted many shares on the lower reaches of the stock market have enjoyed a buoyant run. The 250 mid cappers have come back into fashion and the small caps have edged towards a new peak.

Mind you, they had a torrid time last year and, it could be argued, are merely making up for past misfortune. Even so their revival is a welcome development; after all any share market needs a strong undercard.

But there are in some quarters suggestions that the undercard run could be over. Certainly mid caps have tended to lose some of their exuberance, drifting forlornly as Footsie's decline has overshadowed proceedings. But down among the little'uns, confidence is still high and the trend remains seemingly upwards.

Worries about the strength of the Dow Jones Average and, inevitably, the trend of interest rates, have been major factors in Footsie's sharp summertime decline.

This week's US interest rate decision is crucial; a quarter of a point increase is widely anticipated. Such a move could signal a further short- term setback. Brian Kiely, chartist at the Royal Bank of Scotland, is one who is bearish on Footsie "over a one to two month horizon".

But one of the more arcane reasons Footsie has wilted is it has been hit by a backlash from this year's mega mergers.

The creation of the BP Amoco behemoth, accounting for approaching 10 per cent of Footsie, has forced many institutions to pour cash into the shares, merely to retain their percentage weighting. It is no surprise that BP, admittedly helped by the strengthening crude oil price, has not been too embarrassed by Footsie's woes.

The other 1999 creations, Vodafone AirTouch and AstraZeneca, have also soaked up institutional cash.

But looking further ahead there remains, despite the blue chip slide, a surprisingly high degree of optimism.

Lehman Brothers sees the index ending the year at 6,800. And there is a hearty band of highly regarded strategists who feel this time next year Footsie will be riding high. Dresdner Kleinwort Benson is shooting for 7,200 and Legal & General and Morgan Stanley are on 7,000. Warburg Dillon Read expects 6,850; Salomon Smith Barney 6,800 and Goldman Sachs 6,700.

Goldman is on 6,500 for the end of this year and has a 2000 year-end estimate of 7,200 pencilled in. The bulls draw strength from the recession that never was and the prospect of improved company earnings. Says L&G: "We feel sure that the statements accompanying the results figures will, on the whole, show confidence in the second half revival of fortunes."

Even the strong pound is no longer the bugbear it used to be. And domestic interest rates, although unlikely to fall further, are not expected to be raised significantly in the next year or so.

A frequent claim is that only a fool or a charlatan claims to know where the market is heading. It is the job of the City's highly rewarded strategists to try and estimate the direction of leading equities. They do not, of course, always get it right; if they did most would have swapped the daily grind for a millionaire's retreat. Indeed, they can be embarrassingly wrong.

Even so, strategists are still among the best guides available for helping investors, big and small, when they try to compose an investment strategy.

An odd couple, Hilton and Rolls-Royce, head this week's results schedule. Rolls is set to produce interim figures around pounds 165m against pounds 135m last time. The aero-engine group's shares climbed ahead of the figures and on Friday SG Securities suggested investors should switch into the company from Smiths Industries.

Hilton's interim figures are expected to show little change from last year's pounds 130m. More interesting will be the group's comments on its direction; some expect it to float off its gambling side which is under pressure from off-shore operators.

Cobham is once again likely to show that size is not everything in the aerospace market. Dresdner Kleinwort Benson said recently that despite its apparent size disadvantage its presence in niche areas "provides a high degree of confidence over prospects". Interim figures could be around pounds 35m against pounds 30m.

Cairn Energy, one of the mid cap oil groups, should display a dramatic turnaround. Interim income could be pounds 5m against a loss of pounds 6.2m in the previous year. Increased gas production from its Sangu field in Bangladesh should be a major factor in the improvement.

Finelist, the automotive components distributor, is thought to have had a subdued time in its past year and profits of pounds 31m against pounds 30.3m are on the cards.

There is a distinct media touch about other companies reporting. Metal Bulletin, where the Emap publishing group has a long-term, near 20 per cent shareholding, should again have recorded solid progress with six months profits of some pounds 2.7m compared with pounds 2.38m.

Informa, a specialised conference and publishing group, should produce interim profits of some pounds 14.2m - the first figures since LLP merged with IBC. The formation of the group probably produced a pounds 10m exceptional charge but the merger is said to be producing cost savings of up to pounds 2m a year.

Dialog Corporation has had an erratic time since arriving on the market in 1997, moving from a 236.5p high to a 47p low at the turn of the year. The group is not expected to roll out a significant result. Attention will centre on its second-quarter revenue which could be pounds 45m against pounds 42.7m in the first quarter.

There are also hopes that Dialog's chief executive Dan Wagner will at least announce substantial progress in its debt restructuring, an exercise Salomon and Chase Manhattan are carrying out for the information provider.