After five days of gains, and big ones at that, there was no real surprise among the investment community at the emergence of a sizeable dose of profit-taking in London's stock market on the first trading session of the fourth quarter.
And it was the same story on Wall Street where the Dow Jones Industrial Average followed up last week's 7.4 per cent rally with a three-figure decline, responding to a number of profit warnings and tending to ignore a better-than-expected National Association of Purchasing Managers reading for September.
Dealers in London said it was profit-taking, mixed with niggling worries about the stunning strength of the UK housing market, that had provoked much of yesterday's selling pressure.
They said the absence of any hard news regarding the expected retaliation by the US and others to the terrorist attacks in New York and Washington played no real part in the market's setback.
Dealers said the market had now mostly priced in further rate cuts expected in the US and the UK this week. The US Federal Reserve's rate-setting open market committee meets today to determine US interest rate policy and is expected to endorse a further 50 basis points reduction in rates. An announcement from the FOMC is expected at 7.15 p.m. London time.
The Bank of England's monetary policy committee starts its monthly policy meeting tomorrow. Most economists expect the MPC to follow the September 18th cut in UK interest rates with a further 25 basis points reduction.
In a "UK corporate health check" the strategy team at Credit Suisse First Boston said its main conclusion "is that financial health is not synonymous with defensiveness. Nor is cheapness".
It added: "Within the market oils, pharmas, media and mining sectors look strongest in our health check.
"Largecap stocks with a high free cash-flow yield backed by solid interest cover and low gearing include BP, BAT, Shell, Rio Tinto and WPP.
"Largecap stocks that we believe offer a high and well-covered dividend yield alongside low gearing include BAT, Abbey National, Anglo American, Imperial Tobacco, Rolls-Royce, Rio Tinto and Barclays."
