Wall Street took the Footsie by the scruff of its neck on Thursday and finally dragged it out of tro...
Wall Street took the Footsie by the scruff of its neck on Thursday and finally dragged it out of trouble. The flat start to the FTSE 100's week at 5468.9 had turned nasty by Wednesday as techs and telecoms, spearheaded by computer services group CMG, led the index down a 76 point tunnel to levels unseen since March.
The cavalry came to the rescue on Thursday as US stocks made their biggest moves since April, which helped the Nasdaq rally 5.3%. The charge was led by an upbeat forecast from Microsoft and better than expected profits from both internet firm Yahoo and mobile phone maker Motorola. General Electric also reported record results for its second quarter.
Early Friday, the US inspired rally had the rancid air of a dead cat bounce. By midday Friday though, the FTSE 100 clung onto a 20.8 point advance to 5502.4 as a mixed bunch of gainers capped at a modest 3.9% offset an equally mixed bunch of fallers limited to 3.2%.
Major corporate action over the week saw the Government block Lloyds' £19bn hostile bid for Abbey National. Lloyds TSB chief executive Peter Ellwood was left staring out to sea, as he suggested the bank would now focus its attention abroad. This news failed to move either stock especially as the market had second-guessed the Government's decision.
Telecom feathers were ruffled midweek after the European Commission raided UK and German mobile phone operators to see if they had colluded in illegal price fixing for roaming charges. But the event proved to be little more than a storm in a teacup and stocks recovered the following session.
Looking ahead isn't exactly promising. There are growing fears the impact of crises in Turkey and Argentina will hit world stock markets. Furthermore, the British Chambers of Commerce said industry is on the brink of global recession. Its quarterly survey found business conditions at their lowest ebb for more than two years. It's pressing the Bank of England to further cut interest rates down to 5%.
Commenting on the technology outlook this week, some city pundits went so far as to recommend that chip manufacturer's shares be completely scrapped from portfolios. They argued that until a sufficient level of consolidation is underway, they're not worth holding.
Take note, however, that by midday Friday chip developer Arm was the week's top gainer, up 9.4%, followed by software group Sage, up 8.2%, Misys was up 8% and Marconi gained 7.9%. Admittedly computer service CMG was the week's poorest performer, down 10.9% but old economy stocks followed which were Standard & Chartered and Invensys.
A week like that, despite its volatility, vindicates holding tech stocks, at the very least adopting a bearish outlook for possible short-term gains. The presence of tech stocks as the week's top four gainers also hints that the decline is nearing the bottom. It's undoubtedly a risky business though - picking the wrong tech stock can still seriously damage your wealth.
Has run Cautious Managed fund since 2011
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Invested from 2006-2011