Interactive Investor

Market snapshot: UK stocks in focus after double-dip recession avoided

12th February 2021 08:30

Richard Hunter from interactive investor

It's no surprise to hear how bad the UK economy did last year, but there is hope that domestic stocks could recover fast.

The UK GDP numbers may not be cause for celebration, but avoiding a double-dip recession is a small mercy.

Growth of 1% in the fourth quarter of 2020 was made possible by the country not being locked down for the whole period and, perhaps equally importantly, by the fact that many companies were rather better prepared having experienced the effects of the pandemic earlier in the year. 

An overall decline for the year of 9.9%, according to Office for National Statistics data, may have broken records but is of little surprise given the circumstances. There is also every likelihood of a contraction in the first quarter of this year, with the latest lockdown in full swing. More positively, the release of pent-up demand after restrictions have been eased could provide a significant boost as the year progresses.

Anticipation of a recovery is beginning to filter through to investor psyche, where sectors previously in the firing line could stand to show the sharpest recovery. Notwithstanding any surprises from the full-year reporting season which begins next week, the banks could be at the centre of renewed attention, while the leisure, travel and hotel sectors all stand poised to benefit.

This tentative optimism has not fully washed through yet however, with the FTSE 100 index posting a gain of just 0.8% in the year to date.

In the US, markets are edging towards a listless end to the week, as the outcome of political negotiations are awaited on the President’s proposed relief package and with some reports of a Covid-19 variant emerging in California. 

Meanwhile, a successful reporting season for big tech in particular has propelled the Nasdaq further and the index is ahead by 8.8% so far this year. The preponderance of tech within the S&P500 has also been a factor in its 4.3% rise in the year to date, while the Dow Jones has added 2.7%.

Walking the fine line between containing the virus and enabling economic recovery is a difficult act, and investors will need consistent evidence of success before the anticipated gains for markets can be fully realised.

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