Worst new year for UK market since 1935

Jan 17 2008 by Iain Laing, The Journal

THE London market has suffered its worst start to a year since records began in 1935 and yesterday fell below the 6,000 mark for the first time since the credit crunch began last August.

Fears over the US economy and the deepening crisis in credit markets has seen the FTSE All-Share Index endure a 7.1% fall since the start of 2008 and the FTSE 100 is down 7.5% after a rise of just under 4% to 6456.9 over 2007.

The drop marks the largest ever fall on the London stock market in the first half of January, according to expert David Schwartz.

And the statistician, who has published books including the Schwartz Stock Market Handbook, warned worse may yet be to come for UK blue chips as he predicted a “solid thumping” for shares over the year ahead.

The fall follows a tough week for London’s leading share index amid economic concerns in both the UK and US in the wake of America’s sub-prime mortgage meltdown and the subsequent credit squeeze.

The latest turmoil for investors was sparked after the world’s biggest bank, Citigroup, unveiled a £5bn fourth-quarter loss and new figures showed US shoppers cut back sharply on spending in December.

That prompted a major sell-off on markets worldwide, with more than £45bn wiped from the value of London’s blue-chip shares on Tuesday.

With Asian markets down by more than 3% yesterday, the FTSE 100 Index continued to decline, closing last night at 5942.9, down 82.7.

Mr Schwartz said the disastrous New Year performance and turbulence seen since last summer “warn that a painful correction is likely”. His records go back to the launch of the inaugural FT30 index in 1935, which was replaced by the FTSE 100 Index in 1984.

He said: “We probably got a taste of the decline this past summer when shares fell in June, July and August.

“Summertime weakness as severe as in 2007 is rare – since the Second World War, there were just eight other years when the UK stock market declined in all three months.

“It is not common knowledge but a fully-fledged bear market was under way in seven of those years.”

January is traditionally one of the best months of the year on the stock market and is often thought to set the tone for the rest of the year.

David Jones, chief market strategist at IG Index, said the market’s move below 6,000 may see blue chips dive further over 2008.

He said that while the FTSE 100 had briefly fallen under 6,000 twice over the past year, the gathering economic gloom on both sides of the Atlantic may not see the index make such a swift recovery.

“If the current four-year-plus recovery is to remain intact, investors will want to see the market bounce back from its current depressed levels.

“If the FTSE 100 continues to remain weak and breaks below last year’s lows around 5,800, the longer-term technical picture for the index looks decidedly the most bearish since early 2001, when a sustained move below 6,000 signalled the start of the slide that saw us hit 3,300 in March 2003.”