Interactive Investor

Market snapshot: US rally and FTSE 100 reshuffle latest

21st May 2021 08:14

Richard Hunter from interactive investor

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Wall Street did well overnight, but price moves here could have a big effect at the next FTSE 100 review.

The slowing of inflation concerns may be temporary, but it has nonetheless allowed markets to regain some of the lustre they had recently lost.

A weaker than expected US business activity reading and a rise in jobless numbers in early May brought into question the previous assumptions that the US economy was running too hot. Although these data points alone are not sufficient to alleviate inflationary concerns, they provided a respite to growth stocks in particular, with the Nasdaq posting a strong gain to stand ahead by 5% in the year to date. The Dow Jones and S&P 500 also had something of a relief rally after suffering losses earlier in the week, and in 2021 are now up by 11.4% and 10.7% respectively.

Meanwhile, the FTSE 100 continues to attract interest when investors move in to “risk on” mode, with its seemingly undemanding valuation marking it out as an investment destination. There has also been evidence that some of the purported pent-up demand in the UK economy is now being released, with a strong retail sales reading reflecting the partial easing of lockdowns in April.

The index has risen by 8.7% in the year to date and is currently well poised to benefit from the likelihood of an accelerating global recovery, despite the more recent strength of sterling which usually works against the index given the international focus of its constituents.

FTSE 100 reshuffle runners and riders

Those constituents are soon due for review, with engineering firm Renishaw (LSE:RSW) likely to have had no more than a fleeting visit to the FTSE 100 after promotion to the premier index in March. The company’s octogenarian founders have put their stakes up for sale, but a reportedly difficult set of parameters and the level of the share price seem so far to have deterred potential buyers. The shares have fallen by 15% over the last month as a result, and relegation from the FTSE 100 seems guaranteed in the imminent June reshuffle.

Its replacement is currently a two-horse race between the outsider, ITV (LSE:ITV) and the favourite, Royal Mail (LSE:RMG). At current levels, the ITV share price would need a boost of around 5% for its market value to surpass that of Royal Mail.

Both shares have had a very strong run on recovery prospects. For ITV, where the clouds are beginning to clear as advertising revenues build and the Studios business edges towards full production, the shares have seen a 73% hike over the last year.

Meanwhile, pressures arising from the pandemic have given Royal Mail the jolt it needed and with startling effect. The spike in volumes during the pandemic accelerated the trend away from letters and towards parcels at a pace which forced the transformation of the company at lightning speed. The shares have risen by 213% over the last year as a result, and the company is most likely to replace Renishaw at the top table.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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