Jim Armitage: Share price shocks signal an end to the bull market

Legoland owner Merlin has warned about tough times in terror-hit European city centres

Jim Armitage @ArmitageJim17 October 2017

In normal times, when a major company issued a profit warning, its shares would fall 5%. Analysts would go berserk, fund managers would reach shakily for the whisky cabinet, News at 10 would swing into action.

These days, if the shares don’t fall beyond 10% the world barely notices. Instead, Merlin warns about predictably tough times in terror-hit European city centres and the share-price collapses 20%. Yesterday, wound care group ConvaTec warned on sales growth and crashed 26%. Last week GKN said the US wasn’t going so well: its shares crashed 10%.

Each are multi-billion-pound stars of the FTSE 100 index. None of the warnings make them inherently worth 10%, 20% or 26% less than a week ago. Are these falls just down to volatility? Will they correct in the coming weeks? Not necessarily. Dixons Carphone and WPP, down 30% and 10% after their August warnings, are still there now.

None of these warnings were overly shocking. Merlin has been talking about terrorism for months, WPP has been banging on about the threat from social media for years, everybody with a phone knew we’re upgrading less and less often: of course Carphone is suffering.

So, what’s going on? The fact is, the bull market is drawing to a close. Investors are finally realising they’ve been deluded for the past year by the absurd bubble driven by low interest rates and QE. Profit warnings are a slap around the chops to snap us out of our dreamland.

Fund managers disagree. Progeny Asset Management argues most valuations are fine, but QE has pushed new investors into shares who don’t understand them.

Bond experts, for example, think they should behave like fixed income, are shocked when things go wrong and run for the hills.

Perhaps so. But it seems to me that a FTSE 100 and Dow at record highs is increasingly detached from the economic reality. A much-needed correction is on the way.

Topshop needs clicks

The troubles at Topshop are as well-documented as Sir Philip Green’s love of swearing.

Rightly, his new chief Paul Price is clearing the decks of weaker-selling ranges and even killing off entire departments. But, for all his bricks-and-mortar remedies, the biggest cause of Topshop’s woes remains its online rivals.