Courtaulds Textiles is expecting lower profit

of 1992's #39m. As happened to GEC shares last week, the warning from

the group brought a sharp fall in Courtaulds Textiles shares, which lost

54p to 489p.

It also sent a shock wave through the textile sector as a whole, with

Coats Viyella falling, though it later rallied with the market to close

slightly ahead, and even Marks & Spencer, which sells a lot of

Courtaulds' clothes, lost ground.

The string of companies reporting results in line with or below

analysts' expectations has been quite marked in recent weeks. The table

of profits outturns against analysts' forecasts compiled by BZW shows

that analysts have rarely been so out of line.

Dividend payments have also disappointed and earnings forecasts are

being progressively downgraded. All this suggests the stock market has

run ahead of itself -- and yet it continues blithely on to post new

highs almost daily and yesterday ended 40 points up.

While a reaction certainly cannot be ruled out, the market is clearly

more inclined to go higher than lower, whatever is happening in the real

world.

Sentiment is focused firmly on the earnings bounce that is still

expected next year, led by an rise in investment rather than a major

increase in consumer spending, which looks improbable given the

depressed housing market, little if any real growth in incomes and now

the tax rises in the Budget.

Some improvement in consumer confidence may result in less money being

put into savings and more spent in the shops, but fear of unemployment

remains in evidence.

Those looking for an investment-led recovery fed by strong balance

sheets point to the US, where the well established economic recovery has

been led by the capital sector.

Only recently have the economic data, in general, been pointing

consistently toward the US recovery and there have been upsets on the

corporate as well as statistical fronts.

The bull market has wobbled but never really faltered and there is

good reason to believe the UK market will follow Wall Street's example.

Even the sharp fall in bonds on the belief that the next move in

interest rates would be upward did not shake the US market. This

suggests that bonds and equities will be able to move in different

directions, the former slipping on fears that inflation will gradually

pick up and the latter staying strong on expectations of rapid earnings

growth.

If the US example is followed, then the UK market will see relative

weakness in consumer sectors as manufacturing takes up the running. It

certainly could not be leaner and fitter than it is now.

But Courtaulds Textiles has put the wind up the textiles sector, which

promises to be one of the losers from GATT.

The group's comments that the level of activity in the UK in the early

autumn has not been maintained does not augur well for the Christmas

trade on which so much of the consumer sector depends.

First-half profit was 16% lower at #13.7m and it spoke when these were

reported in early September of difficult trading conditions, though

there was some recovery at home. However, observers had predicted a good

recovery in the second half, which will not materialise.

Fortunately for chairman and chief executive Martin Taylor, he will

not be around to report annual results, as he will be installed at

Barclays Bank, where he becomes chief executive on January 1.

The real disappointment has come across the Channel, where trading in

October and November deteriorated from the already difficult conditions

in the first half, when Courtaulds Textiles' operations there barely

broke even on sales of #60m.

However, the group retains its faith in an upturn next year. After the

rationalisation of the Taylor years, it is in a good state to see strong

earnings growth when demand improves.

Courtaulds Textiles' confidence for 1994 is reflected in a forecast of

a higher final dividend. The interim rose 7%.