ADROP in the share prices of oil major Shell and chemicals maker Croda knocked Britain’s benchmark equity index down from five-month highs yesterday.
Some traders said it could herald a further, minor pull-back on the blue-chip FTSE 100 as traders cash in profits from a four per cent rise in the index in October.
The FTSE 100 closed down 0.7 per cent, or 46.27 points, at 6,731.43 points, ending a five-day winning streak.
A 5.2 per cent fall in the price of Royal Dutch Shell took the most points off the FTSE after Shell’s lower third quarter profits undershot analysts’ forecasts.
Croda also slumped 7.6 per cent to make it the worst-performing FTSE 100 stock as analysts and traders focused on an uncertain earnings outlook for the company.
“Results season has, generally speaking, been a bit disappointing. The revenue line has been a bit poor,” said Threadneedle Investments fund manager Mark Westwood, who helps run the company’s UK Absolute Alpha Fund.
MB Capital trading director Marcus Bullus also felt third-quarter updates from UK companies had been mixed and said there was room for the FTSE to fall to 6,600 points in the next week.
“We are very high on the FTSE. There’s room to come down to the 6,600 point level and lose a bit of froth. I’d be taking profits,” said Bullus.
The FTSE is still up 14 per cent since the start of 2013 and only two per cent below its 13-year peak of 6,875.62 points reached in late May.
Threadneedle’s Westwood said that on a longer-term basis, global equities would remain underpinned by central bank policies, which have hit returns on bonds and driven many investors to the better returns available on the stock market.
Even though many investors expect the US Federal Reserve to scale back a massive bond-buying programme at some point in the future, no changes seem likely for now, while UK interest rates remain at a record low of 0.5 per cent.
“We really like equities as the best of a bad bunch,” said Westwood. “Equities do offer that inflation protection.”
On the FTSE 250, Premier Foods was the biggest faller, down 16.4 per cent, after the food group lowered its outlook on consumer spending for the rest of the year.