Equity Index Movers 1 June 2017

Global indices were a sea of green on the first day of the new month, it seems that markets are willing to continue to buy stocks even though we have seen fresh record highs for some indices on Thursday including the S&P 500 and the FTSE 250. There are also signs that the UK election is starting to have an impact on the FTSE 100, which we will explain in more detail below.

Labour gains in polls hitting the Utilities sector

The top performing sectors in the FTSE 100 were IT and real estate, with UK real estate catching up with the overall index. Commercial real estate is also starting to benefit from a reduction in anxiety over the UK property market in the wake of the Brexit vote. The real estate sector is looking good value on a P/E basis and that is attractive for investors when indices are at, or close to, record highs.

The weakest performing sectors on the FTSE 100 were telecoms and utilities. Utilities fell nearly 2%, as the polls showed that the Conservatives only had a three point lead over Labour, which is within the margin of error. The Labour manifesto has pledged to nationalise utility companies, so as Labour’s fortunes in the polls start to rise, jitters in utilities sector are to be expected. National Grid and Centrica are the two worst performers. National Grid, in particular, could be ripe for nationalisation under Labour and fell more than 3.5% today.

Other weak performers were Taylor Wimpey, who bucked the overall positive day for the real estate sector. Its stock price fell 6.5%, the largest decline since July 2016, the decline was due to an investment bank analyst downgrade to hold from buy, which triggered a wave of selling.

Paddy Power benefits from May’s wobble in the polls

In contrast, the top performer in the FTSE 100 was Paddy Power. With the UK election result so uncertain with only a week to go, this is deemed to be good news for the bookmaker. 3i had another stunning day, up more than 3.5%. This came after an announcement that 3i Group had boosted its infrastructure assets with the purchase of Belfast City Airport and ESP Utilities. This company has had a stunning week, and its stock price is up more than 10%. Firstly, 3i is benefitting from a cheaper P/E ratio compared with other members of the FTSE 100, and secondly its growth story seems to have caught the imagination of the investment community, thus there may be some further upward pressure towards the 1000 mark, which would be the highest level since 2001. We would note that from a technical perspective 3i is looking overbought, but that doesn’t seem to be stopping the bulls quite yet.

Overall, global indices look like they are in a strong position as we head into the Non-Farm Payrolls report on Friday. In the UK, election fever is starting to hit, which is good for the bookmakers, but bad news for some utilities.