While the S&P 500 and Nasdaq have enjoyed another bumper month, a number of London's blue chips have sunk to 52-week lows today, including Unilever PLC (LSE:ULVR) and Burberry Group PLC (LSE:BRBY), along with six others from the FTSE 350 and over a hundred more small caps.
Dr Martens was among the most prominent sinkers this morning, losing a quarter of its value on the day, while other FTSE names scraping yearly lows today include Entain PLC, Auction Technology Group PLC (LSE:ATG), Digital 9 Infrastructure PLC, Diversified Energy Company PLC and Inchcape PLC.
Another 54 small caps thumped down to year's lows, including Petrofac on the main market, and a raft of AIM-listed outfits, ranging from ITM Power PLC (AIM:ITM) and Mulberry Group PLC, to Team17 Group PLC (AIM:TM17), Marlowe PLC (AIM:MRL), Sutton Harbour Group PLC, Symphony Environmental Technologies PLC (AIM:SYM) and XLMedia PLC (AIM:XLM, OTC:XLMDF).
A further 97 companies, of which 80 are on AIM, thudded to a 52-week low in the past two weeks, including AstraZeneca PLC (LSE:AZN) at the larger eng, down via Reckitt Benckiser Group PLC, Indivior PLC (LSE:INDV) and James Fisher & Sons PLC (LSE:FSJ) to Motorpoint Group PLC and Pharos Energy at the smaller.
The significance of 52-week lows differs between investors but can be important for traders using technical analysis, though there is no certainty as to how it should affect investment decisions.
Some investors argue that the negative sentiment that drove a stock to fall in value is likely to continue, while others look for a bounce back to signal a bottom beyond which the stock is unlikely to fall.
Many of today's depth-plungers, such as Dr Martens and Auction Tech this morning, Burberry earlier in the month, likewise Entain, Frontier, Team17, Mulberry and Carclo have issued results that included some form of lowered guidance or warning about the outlook, with Diageo's three-year low another notable example from earlier in the month.
But most of these were far from drastic warnings of doom and gloom, though many companies' shares were sent to all-time lows (Motorpoint, Dr Martens, Team17, Auction Tech, for example) or multi-year lows (as well as Entain there was Frontier, Carclo (LSE:CAR), Mulberry and Johnson Matthey).
However, some firms hitting lows have issued strong updates or big deals, such as SigmaRoc PLC, which announced a major deal paired with a £200 million fundraising.
And it's far from bad news for London stocks, with all-times for 3i Group PLC (LSE:III) this week, The Sage Group PLC (LSE:SGE) last week and Shell last month, with multi-year peaks for Rolls-Royce, LSE Group, DCC, AB Foods, and Empire Metals, while Next, Admiral Group Plc (LSE:ADM), Cranswick PLC (LSE:CWK) and Berkeley Group Holdings PLC (LSE:BKG) are at 52-week highs and not far off two-year or three-year peaks.
And that's without mentioning US tech stocks.
Is there a link?
It could be argued that many of the companies' issues are self-inflicted or company-specific, such as Entain's Turkey fine and issues over M&A strategy that have enflamed activist investors; Dr Martens' high-priced IPO as it was floated by former private equity owners; Burberry caught up in a luxury downturn; and Team17 and Frontier Devs having overreached during the pandemic gaming boom.
But is there a wider link or is it just the stock market doing stock market things?
Russ Mould, investment director at AJ Bell, said the woes at Dr Martens are "entirely self-inflicted", with its latest profit warning "one of a string and will merely serve to reinforce the prejudice that many investors have against floats that come out of private equity".
Dr Martens had blamed a downswing in US consumer demand, and both Burberry and Unilever's issues are also linked to the consumer.
For Burberry, Mould said the issues were of "weak demand - or at least a slower recovery than hoped" in China/HK, with investors having bid up luxury goods stocks to some very, very punchy earnings multiples, and luxury goods firms relying not just on the 1% but a lot of aspirational customers who may be having to stretch.
Unilever's link to rising interest rates is "a massive factor", he said, as staples stocks are treated by many as bond proxies with dividend yield a key part of the total return, and higher cash and bond yields lead to proxies like staples and utilities stocks looking comparatively less attractive.
The contrast with the US tech giants of the 'Magnificent Seven' – Apple, Amazon, Alphabet, Nvidia, Meta, Microsoft and Tesla – has been stark.
Alex Campbell at FreeTrade said the year has been "a story really about the haves – namely, the magnificent seven – and the have-nots - everyone else, but especially UK small and mid-cap stocks."
The divergence is the function of a few factors, Campbell said: "The consumer is showing resilience, but spending in the UK is definitely lagging. 64% of Brits (according to the ONS) are spending less as a result of cost of living pressures. While energy costs have eased, I'd expect to see tighter budgets across this holiday season which may impact spending on more discretionary items."
Meanwhile, consumers have been showing a willingness to continue spending on some items such as holidays while dialling back on other discretionary products, he said, with Jet2 and EasyJet two examples of companies that have continued in strength in 2023.
"It's proving easier for consumers to forgo the purchase of a new Burberry scarf or pair of Docs, than it is to pass up the chance for some sun and surf, even if it's on more of a budget than in past years," he said.
Mould acknowledged there could well be an element of reflexivity in the rise of the Mag7, as stocks go up, index weightings go up, leading passive ETF index-tracking funds to buy more to reflect that, which provides another factor to lift stocks up, again lifting index weightings and causing the circle to continue.
"History suggests having such a lopsided market is not healthy over the long term. Paying any price for the NiftyFifty in the early 1970s ended in tears and it is the issue of price/valuation that is essential here – no matter how strong the business models, the higher the valuation, the more dangerous a stock becomes, as there is less downside protection if anything unexpected goes wrong and less potential upside."
Campbell the divergence in valuation with UK small and mid-caps is "increasingly looking like a once-in-a-lifetime opportunity".