I suggested in my last column before the US election that any immediate stock market reaction to the result, whichever way it went, would be short-lived, just as the impact of the Brexit vote was. However, I could not have envisaged just how short the blink of an eye could be. The FTSE 100 index dropped 100 points as Donald Trump’s victory was confirmed just before the London opening. Within one hour that loss had been wiped out.
The lesson for small investors is not to get sucked into a panic in the first few minutes of trading. Leave that to the day traders, who thrive on this sort of reaction.
For the longer term, the election at least frees the deadlock caused by having a Democrat president and a Republican Congress. Although President Trump will probably be a lot less wild than Candidate Trump, I am sure there will be some tax cuts and some extra government spending, with the bill to be picked up later. That will help to get the economy moving despite a quarter point rise in interest rates next month.
For investors, life goes on as usual with the proviso that we could at last see bond prices start to fall and bond yields edge higher. For long term investors, there is every reason to stick with stocks.
High Street Lows
Marks & Spencer (MKS) has decided to treat the symptoms rather than the disease, though you could take the alternative more positive view that it has decided to face reality.
I can’t quibble with the decision to rein back on overseas operations. This is at least the third time that the retailer has been forced to admit that the British model does not translate easily into other countries and each time it has been an expensive mistake. This reorganisation will remove £45 million of losses each year but even so it will take four years for the initial costs to be recovered.
More important is the decision to reduce space for clothing and home and expand the food side. Despite years of repeating the claim that the heavily criticised clothing range has been sorted, a quarter of the current space will be shunted round or closed to make way for more food. All this will naturally be expensive as well.
Old habits die hard. Chief executive Steve Rowe reckons that an 18.6% drop in underlying profits in the six months to 1 October represents “good progress against strategic priorities” and that a 2.4% second quarter fall in clothing and home sales means “we are seeing early signs that our actions are working”. Well, at least it was better than the 8.3% fall in the first quarter.
What puzzles me is that, in clothing and home, M&S says it has restored price integrity – whatever that means – and seen strong improvements in the volume of sales yet total sales still declined and M&S lost market share.
The interim dividend is maintained at 6.8p but there will be no repeat of the rash special dividend paid out earlier this year. The shares fell from 349p to 325p in the two days after the results were announced and are down 200p over the past 12 months. It is hard to see them recovering far until there is genuine evidence that the tide has turned.
Despite some mangling of the language by Rowe, he was a lot more upfront than Mike Coupe at Sainsbury (SBRY). A great screed of positives and platitudes at the head of the interim results announcement curiously failed to make any mention of the 10% drop in underlying profits in the first half to September 24. The 3.6p dividend was stated without mention that this, too, is down 10%.
Coupe is having to cope with rising costs and intense competition. The shareholders are entitled to straight talking. Without such honesty, it is impossible to recommend buying the shares.
