The FTSE 100 index hasn’t had it so good for a while now. As I write, the index is hovering around 6,200, a level not seen since early August. Its increase of 5% since the last close hasn’t been seen since March.
No points for guessing the reason for the stock market rally though. The US’s election polls had global stock markets on tenterhooks for much of last week and the rally was initially driven by Biden’s win. Pfizer’s successful coronavirus vaccine has also added to huge investor relief.
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What the ‘Biden bounce’ means for the FTSE 100
Both imply that the worst is over for stock markets. Uncertainty around the US’s political future was moving them sideways and Covid-19, of course, had sent businesses across the world in the doldrums. The US economy was expected to show healthy growth in 2021, but forecasters like Goldman Sachs said that a Biden win would improve growth prospects even more.
I think companies with a strong US market stand to gain. Recently, I wrote about how the Irish construction firm CRH could be a big gainer in time. There are at least two more stocks in this category. One is Ashtead, the FTSE 100 industrial equipment rental company. More than half its revenues come from the US.
Another is the FTSE 100 luxury brand, Burberry. It will get a double boost in demand from a Chinese bounceback and now the US. The US accounts for a smaller, but still substantial 23%, share in its revenues.
FTSE 250 stocks to consider
In a similar vein, I’d now consider buying the beleaguered fashion brand and retailer Ted Baker. After a reset following last year’s fiasco, the company has been struggling like many others in 2020. However, with 30% of its sales generated in North America, the tide may be about to turn for it.
I’m also hopeful about Cineworld, which has a strong US presence too. Its share price has already bounced back, with a very likely shot in the arm from the Pfizer news.
FTSE 100 stocks I’d avoid now
FTSE 100 precious metals giant Polymetal International, on the other hand, has weaker prospects in my view than earlier. The reasoning is straightforward. Precious metal stocks have rallied this year on macro-economic and financial markets uncertainty. With some stability back, I reckon the gold price’s rise will slow down. This, in turn, will impact gold stocks.
It doesn’t mean that all will be lost for them. POLY, for instance, showed strong revenue growth even before the gold price rally. But if the price of gold is the sole reason for buying the stock, I’d think it through first.
I’d think similarly about Fresnillo, another FTSE 100 precious metals miner. It may not have lost its lustre, but it is probably dimmed for now. If Pfizer’s vaccine news turns out less positive than is now suggested, there could be a bounce-back in gold stocks. Over time though, I reckon their growth will temper.