The FTSE 100 finished lower by 0.6% on Wednesday, with the stock market struggling to make gains due to negative sentiment and news of potentially higher tax rates. After falling heavily on open, the index was down over 1% by mid-morning. However, it did manage to rally back over the course of the rest of the day, before falling again as we headed towards the end of the day.
The winners and losers
The main losers that dragged the stock market down today were homebuilders and property-related stocks. Taylor Wimpey, Persimmon, Barratt Developments, and Land Securities were all down over 2%.
This likely linked back to the overall sentiment of caution around the economic recovery here in the UK. The property market has performed exceptionally well over the past year. But with stamp duty holidays now over and recent economic data not as positive as some expected, the housing sector could come under pressure.
The main gainers in the stock market today were from a mix of areas. The top performer was B&M European Value Retail, with shares rallying almost 7%. This came after a positive trading update was released. In it, the company noted that “gross margins have been stronger than originally anticipated”. As a result, it has hiked its profit guidance for the rest of the year.
The second top gainer was Smiths Group. It saw its share price rise almost 3% thanks to confirmation of selling off a division to ICU Medical for $2.4bn. The medical division that it was looking to sell had others bids. Ultimately, this one that was chosen was clearly taken in a positive light by investors.
Negative sentiment weighing on the stock market
The overall index did finish in the red. One reason for the downbeat mood was the news that National Insurance contributions are set to rise. The money raised is expected to be able to give the NHS £36bn over a three-year period.
There is also going to be an increase of 1.25% on the rate of dividend tax. Aside from the tax-free allowance (currently at £2,000 a year), this bump up in tax will impact investors across the board.
Regardless of political affiliation, higher taxes are usually taken as a negative by financial markets as it signals a tightening of fiscal policy. In a similar way, tightening monetary policy (such as higher interest rates) is also a negative for the stock market.
Added to this was concern about the economic recovery from Covid-19. This weighed not only on the stock market in the UK, but also around the world. For example, the German DAX closed down 1.3% and currently the US NASDAQ is down 0.8%.
Overall, today was a negative day for the stock market, but there were still some good stories to find within the FTSE 100 index.
