The quarterly reshuffle of the FTSE indices is almost upon us. Our head of markets names the stocks likely to be involved this time.
The impending FTSE100 reshuffle is shaping up to be an unusual situation, with two companies currently in the driving seat for inclusion in the index likely to be short-lived promotions.
William Morrison Supermarkets (LSE:MRW) and Meggitt (LSE:MGGT) have both seen their share prices soar due to takeover situations and at current prices would both be promoted. Morrisons has been the subject of a bidding war which has seen its price rise by 62% over the last three months, with private equity firm Clayton, Dubilier & Rice in pole position to win the race for the grocer and therefore see the shares delisted.
Similarly, shares in aerospace company Meggitt have risen by 71% over the last three months after approaches from both Parker-Hannifin and TransDigm Group. Whichever company ends up with control of Meggitt would result in the shares being removed from the premier index.
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At current share prices, the two stocks making way for Morrisons and Meggitt would be ITV (LSE:ITV) and Weir Group (LSE:WEIR). ITV shares have dropped by 11% over the last three months and removal from the index would follow a previous relegation in September 2020, followed by promotion back into the index in June. Engineer Weir Group has also suffered a dip of 11% over the last three months and relegation would also represent a short stay in the premier index, having been promoted in March.
In another unusual development, FTSE Russell have concluded that the shares of Just Eat Takeaway (LSE:JET) will be removed from the FTSE100, having reassigned the company’s nationality from the UK to the Netherlands. This in turn would lead to the promotion of veterinary pharmaceutical business Dechra Pharmaceuticals (LSE:DPH), not currently eligible for inclusion at 96th in the table of largest companies (normally a company needs to be above 90th to qualify). But as the next highest ranking FTSE250 company, they would be promoted to replace Just Eat.
The changes will be confirmed after the close of play on Wednesday 1 September, with changes becoming effective on Monday 20 September.
In US markets, the momentum of positive sentiment, partly driven by the previous announcement of full approval for the Pfizer (NYSE:PFE)/BioNTech (NASDAQ:BNTX) Covid-19 vaccine spilled over into a second day, propelling the Nasdaq to a new record closing high. The S&P500 also hit a record closing high for the 50th time this year.
A “Goldilocks” scenario is playing out at present, with economic data suggesting that the recovery may be on track, but not to the extent of overheating. As such, and ahead of comments from Federal Reserve Chairman Powell later in the week at the Jackson Hole virtual meeting of central bankers and finance experts, there are some strong foundations in place, with some analysts expecting that the major indices have further to go. This would add to the strength of their performances in the year to date, with the Dow Jones now up by 15.6%, the S&P500 by 19.4% and the Nasdaq by 16.5%.
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Markets in the UK have struggled to match the ebullience of their counterparts in the US, but have made steady progress amid a cocktail of concerns, ranging from geopolitical worries to signs of weakening growth in China, as well as the strength of the Delta variant in other parts of the world. Even so, for the most part the direction of travel has been positive, with the FTSE100 having gained 10.3% in the year to date, and the FTSE250 16.8%.
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