Stock Market Week: Bulls and bears squabble in pre-millennial jitters

THE MILLENNIUM and the stockmarket: will it be doomsday or damp squib?

The start of the next thousand years is less than six months away and investors will soon have to grapple with the market's pre-millennial jitters.

Most forecasters are warning punters that the last few rides of the 20th century will be bumpy. However, like their predecessors in 999 AD, modern- day Nostradamuses are squabbling over the final outcome.

The bears say that a sharp downward correction is nigh as the millennium bug and general nervousness are set to bring the market down to earth. However, the bulls confidently predict that the equities' inner strength will ensure a rising start of the new era.

The best strategy is probably to believe neither and to be very selective in the stock-picking for the new millennium. In a note published last week, broker Teather & Greenwood had a stab at the millennium winners and losers. According to Teather's head of research, Guy Feld, investors should be wary of banks between now and December.

During this period, the lenders' stocks will be hit by mounting worries over their computers' ability to cope with the millennium bug. Even though the banks swear blind that they are, or will soon be, Year 2000 compliant, Mr Feld argues that their customers' (unfounded?) fears that their cash deposits will go up in smoke at midnight on 31 December will cast a cloud over the sector.

General retailers should also be avoided. According to T&G, if the media portray the advent of the 21st century as doom and gloom, shoppers will defer their spending until safer times. By contrast, food retailers and pharmaceuticals companies should benefit from the apocalyptic predictions as worried customers stockpile on groceries and drugs.

As for the aftermath of the millennium, bleary-eyed punters should shrug off their year 2000 party hangover and rush to buy technology stocks. Software and IT companies should perform well in the first quarter of next year for a couple of reasons. First, companies and governments which did not upgrade their computers in time for the millennium will be in desperate need of quick fixes. Secondly, technology firms will benefit from the release of all the non-millennium IT spending which was put on the back burner in 1999.

Investors will this week get the chance to check out some of the millennium hot stocks.

One of the mooted losers, the banking sector, kicks off its three-week reporting season with Alliance & Leicester and Northern Rock.

A&L will have to live up to the recent boast that the interim, out on Friday, will show strong growth in earnings and significant cost reductions.

Stephen Kirk at Deutsche Bank is going for pretax profits of pounds 242m, up from pounds 230m last time. However, investors are unlikely to settle for a jump in profits and a rising payout. Following the acrimonious collapse of merger talks with the Bank of Ireland, the City wants a big deal. A&L's ongoing share buyback has fuelled rumours that chief executive Peter White wants to prop up its share price in anticipation of a paper offer and investors will seek hints about potential partners. .

Northern Rock is also on the market's takeover list, although Thursday's interims will not wet potential predators' appetites. Interims profits will be marginally higher, say pounds 106m versus pounds 102m. The former mutual has suffered from margin erosion in its mortgage business and has been unable to capitalise on the buoyant housing market.

One of the banks' main IT providers, Misys is on the block on Thursday. The software designer should report a near 40 per cent leap in profits to around pounds 124m. Growth in the core banking business will be held back by the cost of integrating a recently acquired business, but the healthcare division should post a solid advance.

The millennium bug will loom large on Reuters' results tomorrow. The information giant's interims will be depressed by pounds 14m of Y2K spending and by customers' reluctance to buy its screens during the millennium bug-affected 1999. Pre-goodwill profits will be flat as foreign exc#hange dealings through Reuters screens were reduced by the Asian crisis.

Lehman Brothers' Carlo Campomagnani is going for pounds 290m, compared with last year's pounds 294m. Mr Campomagnani and colleagues will want to see whether Reuters' recent rejig of its subsidiaries along operational, rather than geographical, lines is delivering the promised margins boost.

Reuters' plans for the Internet will be a key focus of attention. The company has just completed the incredibly successful US float of its TIBCO Internet software subsidiary and any further move will be watched with interest. The on-line trading business Instinet - a large shareholder in the Tradepoint stockmarket - should have had another strong half, while Reuters' Greenhouse Fund for Internet start-ups is believed to have performed well.

Imperial Chemical Industries' interims, due on Wednesday, will be a much gloomier affair. Tough markets have probably slashed profits to around pounds 120m from pounds 197m in 1998. The current trading statement could contain some positive news given the recent recovery in Asian markets. However, the real price-mover will be the announcement of further debt-reducing sell-offs.

Despite the recent chunky disposals to rival Huntsman, ICI is still buckling under a pounds 3bn debt mountain and the sale of its Acrylics division, maybe to Huntsman, would help.

The drug giant Smith- Kline Beecham, second quarter results tomorrow, is the other big hitter on the block. Profits, at some pounds 438m, will be around 13 per cent ahead, as good drugs sales offset a slowdown in the soft drinks-to-toothpaste consumer division. All eyes will be on the performance of Avandia, SB's recently launched anti-diabetes treatment which could become the industry's next blockbuster.

A couple of trading updates will keep the spotlight on retailers. Sainsbury's AGM statement on Wednesday will be combed for any sign of recovery in the troubled supermarket's fortunes.

The following day, Boots' latest sales figures should provide a good snapshot of High Street spending.