These consumer-focused stocks dominate a bullish session

Serious concerns about the cost-of-living crisis were soothed somewhat by the Chancellor's energy sector windfall tax. Our City expert explains what's going on in a busy day for stocks.

Rishi Sunak’s energy bill support for UK households was today met with relief in the retail sector as shares in the likes of Next (LSE:NXT), Marks & Spencer Group (LSE:MKS) and Dunelm Group (LSE:DNLM) rallied sharply.

The renewed hope for investors that the cost-of-living crisis won’t completely cut off discretionary spending followed the Chancellor’s promise of an energy bill discount of £400 this autumn, which is part of an overall package of help worth £15 billion.

Economists, however, warn that the measures won’t relieve all the pain and may mean the Bank of England has to go harder on raising interest rates in order to reduce inflation.

A 25% windfall tax on oil and gas firms' profits will also be needed to pay for the measures, although this had no noticeable impact on the share prices of BP (LSE:BP.) and Shell (LSE:SHEL) today.

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Consumer-focused stocks instead dominated the FTSE 100 risers board, with Ocado Group (LSE:OCDO) delivering the biggest blue-chip gain only a day after it had downgraded full-year guidance for its Retail arm on signs that shoppers had cut back on basket sizes.

Other FTSE 100 risers included B&M European Value Retail SA (LSE:BME) and Primark owner Associated British Foods (LSE:ABF), while Persimmon (LSE:PSN) led the way among homebuilding stocks.

The UK-focused FTSE 250 outpaced the FTSE 100, with big risers including pubs chain Mitchells & Butlers (LSE:MAB) and rail ticketing firm Trainline (LSE:TRN). Marks & Spencer stood at 149p, representing a rise of more than 10% since yesterday morning’s annual results but still well below the 257p seen earlier this year.

The uncertain outlook had earlier caused analysts to rein in their expectations after Deutsche Bank cut its M&S price target to 165p from 185p and JPMorgan went from 203p to 180p.

Deutsche Bank analyst Adam Cochrane said his “hold” recommendation reflected consumer uncertainty and the downside risk for consensus 2023 forecasts.

However, he added: “M&S is a much better business than it was when Steve Rowe was appointed as CEO in 2016 with reduced discounting and less excess space in the clothing business, a Food business with a clearer price proposition, a more targeted International business and a revamped online offer.”

The biggest rise in the FTSE 250 index came from Serco Group (LSE:SRP) after the outsourcing group forecast revenues of up to £4.4 billion and underlying profit of £225 million, up from previous guidance of £195 million.

Revenues are expected to be flat this year, even though April saw the end of Serco’s UK Test & Trace contract. This generated about £700 million of business in 2021 but Serco has been able to make up the difference through strong trading in areas such as immigration, facilities management and defence.

Shares rose 14p to 166.8p, but Liberum analyst Joe Brent sees further to go after raising his price target by 20p to 200p today.

He pointed out: “Serco’s relationship with the government has strengthened during the Covid crisis.

“Its Capital Markets Day showed that there is a large pipeline of opportunities across the four divisions, and we expect Serco to win its fair share of contracts over the next year. Serco is demonstrating its resilience and should be capable of further growth and margin expansion.”

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The next biggest rise in the FTSE 250 came from transport company FirstGroup (LSE:FGP), which jumped 8.6p to 128p after disclosing a series of takeover proposals from I Squared Capital Advisors.

The most recent was delivered last night and contained a cash amount  of 118p a share with a further 45.6p partly based on proceeds realised from Greyhound legacy assets and liabilities.

FirstGroup, which is the second largest regional bus operator in the UK and also runs four trains operating companies, said all previous approaches were unanimously rejected.