This has been a tough year for the FTSE 100, so investors have good cause to celebrate today’s Biden bounce. The index is up almost 5% today, as markets celebrate US electoral clarity.
Once again, this shows the benefits of snapping up cheap FTSE 100 shares while markets are down. Investors who have been snapping up bargain stocks to build a million-pound portfolio will be raising a glass today, as they will be that much richer as a result.
Investors see the US presidential result as the perfect result for stock markets, hence the Biden bounce. They feared a clean sweep victory, with the Democratic Party taking the Senate and Congress as well as The White House. That would have liberated Joe Biden to slap higher taxes on businesses and slap tighter regulations on the US tech giants. The Republicans look set to retain a slim majority in the Senate, and investors are banking on them to block more radical tax and regulatory measures.
Three cheers for the Biden bounce
You can see the impact on the FTSE 100, which has jumped 4.70% to 6,175 at time of writing. That’s quite some bounce so thanks, Mr Biden. Domestic UK investors seem to be shrugging off concerns that the President-elect, who doesn’t like Brexit, will kill off hopes of a US trade deal.
Ideally, I prefer to buy shares when markets are down, rather than up. So I’m not rushing today to buy the FTSE 100 right in the middle of today’s Biden bounce. But once markets settle, I will. The index may now give up some of its gains, as investors take profits. However, I will be looking to buy UK shares over the days ahead, because there is another reason to be happy today.
Pharmaceutical giant Pfizer and BioNTech have just announced the results of a large-scale study that shows their new vaccine has stopped Covid-19 infections in 90% of cases. This raises hopes that the pandemic could be beaten sooner rather than later. Today’s bounce is not just down to Mr Biden.
The FTSE 100 sectors worst affected by Covid-19 are going gangbusters as a result. British Airways-owner International Consolidated Airlines Group, budget carrier easyJet and Rolls-Royce are all up around 25%. Building group Taylor Wimpey is up more than 18%, and Associated British Foods and Whitbread around 12%. Investors who took a chance on these shares while they were cheap have especially good reason to celebrate the Biden bounce.
I’m backing the FTSE 100 recovery
There are a few losers, as well. Food delivery specialists Ocado Group is down 6%, with Just Eat Takeaway down around 4%. These two stocks have surged this year, as people stuck at home ordered out. Today’s retreat may be a good thing, as both were looking expensive.
Will the Biden bounce last? I’ve no idea. Nobody can reliably predict where share prices will go next, so I’m not going to try.
What it does is remind us of a key investment lesson: when stock markets recover from a bear market, the biggest gains are made right at the beginning. If you buy shares when they’re cheap, you will reap the rewards. Thanks for today, Mr Biden, and let’s hope there’s more bounce in this market.
