There was a time when robust big company earnings, like today’s from Marks & Spencer, would boost the stock market.
Share prices, after all, reflect company profits so if they go up so do shares. Or do they?
This morning the London FTSE nose-dived over 130 points to well below 5000 even as outgoing M&S boss Sir Stuart Rose reported that the UK’s bellwether general retailer had increased underlying profits by 4.6 per cent to a more than reasonable £632.5m in the year to March 27 (£694m if you add in Easter week, which means a lot of eggs sold or something).
But the markets (by which we mean bond traders in big banks) are still fretting over European debt levels and the prospect of further financial charges on the banks that employ them. And possibly England losing their first World Cup game against the US.
There’s clearly a highly dysfunctional relationship between company earnings, which reflect the cash consumers actually hand over, and the bets the aforementioned traders are placing on global disaster.
To a degree the London stock market is bound to reflect such concerns as many of its component companies are multinationals who do little actual business in the UK. In particular it is dominated by the global mining companies who, at various times, have accounted for about 40 per cent of its value. They are worried by Australia’s plans to impose a profits super-tax on their stupendous earnings down under.
And the FTSE’s biggest business is BP, which has a few widely-advertised problems of its own.
But it’s not just M&S that is doing nicely, Vodafone, a truly global company based in Britain, recently reported strong earnings and even BP is raking in cash by the bucketload although quite a lot of it is going straight out again to try to stem the oil spill in the Gulf of Mexico.
Given these earnings shares in London are remarkably cheap although only a few brave souls are buying them.
So have the traders got it wrong? Logic would indicate that they have but the trouble is that their prophecies, however ill-founded, can become self-fulfilling.
This week they’re fretting even more than usual about the Spanish property market and the exposure of big European banks to it in the wake of the failure of a Spanish regional bank last week and subsequent moves by smaller Spanish banks to cluster together for warmth.
The trouble with globalisation of course is that there’s always something going wrong somewhere. Sensible analysts put it into context and consider all the non headline-making things that are going right.
But there don’t seem to be too many sensible souls around at the moment.