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Shares plunge again as traders say it's a bear market
Jonathan Prynn, Consumer Affairs Editor09.07.08
Shares dived again today, taking the City into its first bear market for five years.
The classification of a bear market, a sharp slide in stock value over a prolonged period, came as one broker admitted: "Confidence is shot to ribbons."
The FTSE 100 dropped more than 150 points to 5358.7 at one stage amid growing fears that a full-scale recession is unavoidable.
The slide was led by banks and property-companies after one City analyst warned the housing market could take 20 years to recover from the credit crunch.
The volatility of the market was heightened by rumours sweeping dealing rooms, including a suggestion that Marks & Spencer is being eyed up for a takeover - perhaps even by former bidder Sir Philip Green. Elsewhere, house builder Persimmon said it was cutting more than 1,000 jobs because of the housing crisis and shares in struggling mortgage lender Bradford & Bingley were declared "worthless" by a firm of City brokers. At its worst point today the Footsie had fallen 20 per cent since its last peak in October - the usual definition of a bear market. The previous bear market lasted from autumn 2000 to spring 2003 when share values halved.
Analysts said they could see no sign of light at the end of the tunnel and warned financial and property markets would get worse as the economy deteriorates.
The slide has huge implications for pension funds, many of which were just beginning to emerge from the deficits built up in the first half of the decade. David Buik of BGC Brokers said: "These equity markets look awful. Sentiment is terrible and confidence is shot to ribbons."
Ted Scott, manager of the F&C UK Growth & Income Fund, said: "While we are now technically in a bear market for equities, in terms of the economic backdrop we are still not in a recession.
"At present the UK economy has only just begun to slow after a robust 2007 when GDP growth was above trend. Despite months of gloomy headlines, house prices have so far only fallen a few per cent from their peaks and unemployment is low, albeit rising. Therefore, if a recession does become a reality - and the risks lean that way - there could be further to go."
At one point all 100 firms listed in the Footsie were down but a rally meant that the blue chip index was only 80 points lower by tea-time.
Some of the biggest fallers today included household names such as Taylor Wimpey, down 10 per cent, Royal Bank of Scotland, down 3.6 per cent, and ITV which saw a 4.5 per cent fall.
Richard Hunter from broker Hargreaves Lansdown said: "There are still big concerns over inflationary pressure. It's difficult to see where a positive catalyst is going to come from. The level we're at is bear market territory."
The Council of Mortgage Lenders said the mortgage market is still showing few signs of recovery.
The number of loans for house purchase increased slightly from April to May to 52,700, but is still 44 per cent lower than May last year.
Mark Hake, analyst at City brokers Merrill Lynch, said in a note to clients that the downturn in the property market looks "considerably worse" than the early Nineties crash.
Reader views (7)
GB's premiership is bashed by so many back stabbers in his party. This is an honest man unable to be devious by nature. Recession looms as part and parcel of an economic conspiracy against his premiership. This is fuelled by vested interests directly opposed to his liberalism. The cause of a forecasted recession has nothing to do with Brown's handling of the economy, it has everything to do with irresponsible lending by our banks both in the UK and the US. If banks have no money now this is because 'Joe Public' no longer buys their worthless saving funds or scam insurance products. Evitably, a recession will see wholesale revenue loses to the Exchequer at a time when unemployment will predictably increase to cause government to borrow more from places like the World Bank. Inflation will rise and so will wage demands but none of this is new to us. It is a routine cycle of all Western Economies. Some of our real way out of this is to begin immediate clamp-down on tax breaks given to the very well off. Tax concessions for charibly donation do not have to have a 40% benefit rate. Tax evasion needs to be brought down. Employers using illegal migrates should face stiffer fines as well as having to pay-up on unpaid PAYE. Put a complete halt on immigration saving enormous sums on processing hopeless applications. Their present fee, though low, allows more than one person to benefit from a single applicant fee. This should be, one person, one fee.
- Barca, London
It's not all bad news. We have a highly talented and charismatic prime minister who cares enough for us all to take time out of his 6 course lunch and 19 course dinner in Japan (including the finest wines) to remind us not to waste our food.
We are very lucky to have such a worthy and kindly man leading us.
- Mikko Takala, Drumnadrochit, Scotland
A "depression" is looming just around the corner!
- Fraser, Telford Park
Well the great economic guru Brown is safely travelling in Japan...
- Peteo, London
Your headline states that "House Prices Fall" - the latest numbers that came out TODAY state : UK House Prices YoY ( Actual Sales ) UP 3.7% - survey Up 3.3% : Annual house price growth was 7.8 per cent in London in the year. By country annual house price growth was highest in Scotland (+6.9 per cent) and lowest in Northern Ireland (-7.8 per cent). Annual house prices grew by 1.5 per cent in Wales, and rose by 3.8 per cent in England.
- City Trader, london
All signs that Brown has taxed this country into bankrupcy.
People are no longer able to cope with obscene tax levels and now their jobs are in jeopardy thanks to the last ten years of a liar who has been given the top job.
Bring on a general election so we can rid ourselves of this parasite.
- K Harrop, hertford uk
And Crash Gordon where is he? Do the right thing in Japan? Well he would be right to stay there. The British economy needs real leadership now.
- Anthony, London NW1
