Interactive Investor

Market snapshot: unsettled investors and a FTSE 100 reshuffle

24th November 2021 08:05

Richard Hunter from interactive investor

Find out what investors are worrying about today, and which companies are at risk of demotion or in line for promotion to the FTSE 100 index.

Rising Covid-19 cases in Europe and fears of an accelerated tapering programme in the US are currently unsettling investors.

Increased interest rate expectations helped the banks at the expense of tech stocks, with the energy sector also boosted after some recovery in the oil price, despite a strategic increase in supply by several major nations designed to cool the recent rise.

Bond yields have been rising on fears that the Federal Reserve may accelerate the tapering it has already announced, which in turn could bring forward the likelihood of a higher interest rate timetable. Minutes from the recent Fed meeting will be published today, which may give some further clues on its current tapering stance.

Elsewhere, possible supply shortages for electronic and other big ticket items, which would hurt sales, drove Best Buy (NYSE:BBY) shares lower in a potential sign of things to come. It already seems likely that consumers have been bringing festive purchases forward in anticipation of slower delivery times, which would have an impact on retail sales in the following few months.

In the meantime, the indices continue to grind higher given the generally accommodative environment at present, with the Dow Jones ahead by 17%, the S&P500 by 25% and the Nasdaq by 22.4% in the year to date.

A mixed picture in the UK continues to weigh on the major indices. Some previous strength in the oil, mining and banking sectors which had lifted the premier index is being held back by generally wavering sentiment in Europe as further lockdowns persist, feeding through to weakness in the airline, hospitality and leisure sectors.

Movement for the year remains positive, however, driven by M&A activity and a perceived valuation gap with developed peers, with the FTSE100 up by 12.7% and the FTSE250 by 13.4% in the year to date.

The latest FTSE100 reshuffle will be announced next week after the close of business on Wednesday 1 December, to become effective on Monday 20 December. A couple of near misses should be accompanied by some rather more likely moves.

Royal Mail (LSE:RMG), which had been teetering on the edge of relegation, seems to be safe following the positive share price reaction to its recent half-year numbers. Marks & Spencer (LSE:MKS) looks to have missed out on promotion this time despite its own strong set of half-year results, which included another upgrade to full-year guidance and subsequent bid speculation.

Darktrace (LSE:DARK) looks likely to relinquish its place in the premier index after an extremely short stay. The company was promoted in October following the delisting of William Morrison after its takeover by Clayton, Dubilier & Rice. The shares subsequently came under pressure following some broker downgrades and private equity share stake sales.

FTSE100 stalwart Johnson Matthey (LSE:JMAT) also looks likely for the chop after the share price suffered following the company’s surprise announcement that it would be pulling out of the fast-growing battery materials sector on the grounds of insufficient returns. Its further guidance on full-year numbers was also at the bottom of the range, and its fate seems to have been sealed with a share price decline of 19% over the last month and a mixed reaction to its half-year results today.

The replacements are currently likely to be the distributor of industrial and electronic products, Electrocomponents (LSE:ECM), which has had a strong run of late on the back of strong revenue and profit growth. The shares have risen by 18% over the last three months. Also in the frame for promotion is Dechra Pharmaceuticals (LSE:DPH), a company with particular focus on veterinary products. Shares have risen by over 50% in the last year following strong growth partly driven by outperforming trading in the US market.

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