UK stocks are in a bear market - it's official

Unemployment may have hit a 32-year low at the end of last year, but we can't take too much comfort from this lagging indicator. Especially as, elsewhere, the bad news for the economy just keeps coming.

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Amid all the gloom and there was plenty of it, with stock markets tanking around the world again yesterday employment figures from the UK were a rare ray of sunshine.

Apparently, unemployment hit a 32-year low in the three months to November, while pay rises remained under control, growing at an annual rate of around 4%.

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Gordon Brown of course, cheered the news. But I wouldn't get too excited. As we've already seen from America, and has been mentioned a few times here, employment is a lagging indicator it only starts to turn down after everything else has gone wrong.

So not long now then

Record employment data for the UK was shrugged off by John Philpott of the Chartered Institute of Personnel and Development. He told The Telegraph that the "figures tell us what we already know that the economy was growing strongly for much of last year and this had a beneficial lagged impact on employment. Unfortunately, the economic outlook is not so good and for employment the scene will start to look a lot weaker by the spring."

As I've pointed out before, it takes quite a while for unemployment figures to tick up, even when an economy is clearly in trouble. In the US, jobless data only started to look worrying towards the end of last year, despite the clear trouble in the housing market and some early forecasts of recession.

Woolworths disappoints as usual

But they won't hold out for much longer. Credit rating agency Experian has been a direct victim of the credit crunch. It said yesterday it will cut hundreds of jobs in Britain and outsource them overseas, in a move to cut costs as banks rein in their credit and mortgage lending.

And there was more bad news from the high street though not from an unexpected source. Shares in the perennially disappointing Woolworths fell to an all-time low of 8p yesterday after it refused to report like-for-like sales data for the Christmas period. The group only released data for the 49 weeks to January 12th, which were bad enough, showing a 3.2% like-for-like fall in retail sales.

Chief executive Trevor Bish-Jones said that the six-week figure "would be meaningless. Christmas was about optimising profit, not driving sales." But why not let the market decide that for itself? In any case, as The Telegraph's Tom Stevenson pointed out, "you didn't have to be a genius" to work out, given that like-for-like sales were only down 0.4% in the 38 weeks to October, that Woolies must have had "a dismal festive season."

Can the FTSE 100 stay out of the bears' clutches?

Incidentally, the FTSE 250 widely seen as a better barometer of the UK economy's fortunes is now officially in bear market territory, having fallen 21% from last May's 12-month peak (a 20% fall or more is widely seen as a bear market).

The FTSE 100 is still only in correction territory, having dropped 12%. But that's largely been propped up by mining stocks, which soared last year. Even that prop may now be under threat. With the threat of a US recession now firmly in the minds of most right-thinking investors, the chances of a global slowdown are growing by the day.

While we believe that in the long term, commodities are in a supercycle, and will continue to climb, no market goes up in a straight line, and it's perfectly possible that 2008 will be a much tougher year for base metals prices in particular, than we've seen for a long time. We'll return to this topic in next Friday's issue of MoneyWeek.

As for this week's issue, if you're the type of investor who would much rather be able to sit back and ignore all the turmoil in the markets, then Stephen Bland, experienced value investor, has the perfect portfolio for you once you've bought the stocks, you never have to trade again, he says. That's right never. You can read all about it in this week's issue, out tomorrow. If you're not already a subscriber, you can get three issues free by clicking here: 3-week free trial.

Turning to the wider markets

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Miners drag down FTSE

London's benchmark FTSE 100 index fell 82 points to end the day at 5,942, led by miners including Antofagasta and Rio Tinto.

Elsewhere in Europe, the Paris CAC-40 was 25 points lower, at 5,225, and the Frankfurt DAX-30 was down 94 points, at 7,471.

On Wall Street, stocks pulled back from earlier lows only to fall again near the close on disappointing forecasts from tech bellwether, Intel. The Dow Jones ended the day down 34 points overall, at 12,466. The tech-rich Nadaq sank 23 points to close at 2,394. And the broader S&P 500 closed 7 points lower, at 1,373.

In Asia, bargain hunters came back to the market today following yesterday's heavy falls. The Japanese Nikkei added 278 points to end the day at 13,783. And the Hang Seng was up 664 points at 25,114 in Hong Kong.

HMV enjoys a record-breaking Christmas

Having fallen over a dollar on reports of rising US inventories yesterday, crude oil futures were on the up again this morning, last trading at $91.18. Brent spot was at $89.83 in London.

Spot gold had fallen further from this week's record highs to $880.30 this morning. Silver, meanwhile, had slipped to $15.80.

Turning to forex, the pound was last trading at 1.9704 against the dollar and 1.3474 against the euro. And the dollar was at 0.6834 against the euro and 107.68 against the Japanese yen.

And in London this morning, music retailer HMV Group revealed that it had enjoyed a much better Christmas than many of its peers in the retail sector, with the strongest holiday sales since the company's IPO in 2002. Demand for Nintendo's Wii console and video games made up for falling music sales, taking revenue in stores open at least a year up 9.4%. Profits are also predicted to come in above expectations. Shares in HMV rose by as much as 17% today.

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John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.