What next for FTSE stocks after the mini-budget?

These were the big FTSE winners and losers on mini-budget day. What should investors do now?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Chancellor Kwasi Kwarteng’s mini-budget caused mayhem in financial markets:

  • The pound went into freefall.
  • UK government bonds (gilts) were heavily sold off.
  • And the Footsie stock index ended the day deep in the red.

Why was Kwarteng’s mini-budget so badly received? Which FTSE sectors and stocks were worst hit on the day and which were the biggest gainers? What should investors do now?

Tax cuts galore

On top of the government’s previously announced multi-billion pound scheme to subsidise energy bills, the chancellor unveiled a raft of tax cuts — the biggest tax giveaway in half a century.

We had a reversal of the rise in National Insurance introduced by his predecessor, Rishi Sunak. The abolition of the highest rate of income tax. An axing of the cap on bankers’ bonuses. The scrapping of a planned rise in corporation tax. And a big uplift in the stamp duty threshold.

Risky gamble

Investors and traders appear to have viewed the government’s heavily debt-funded plans as an abandonment of fiscal discipline for a risky gamble on jump-starting economic growth.

To put the financial markets’ response into some perspective, the pound slumped to a new 37-year low against the dollar ($1.08), with some analysts predicting it could go on to fall to parity for the first time in history. Meanwhile, the tailspin in the bond market saw some of the biggest one-day negative gilt price moves in decades.

Falls of 2% for both the FTSE 100 and the more UK-focused FTSE 250 may not have been quite as dramatic, but they rounded off an overall negative response to the mini-budget across financial markets.

Big fallers

Not all UK equity sectors and stocks were down on the day, but let’s begin with the big fallers.
 
One striking feature was the number of real estate investment trusts (REITs) on the fallers’ board. FTSE 100 giants Land Securities (-5.9%), Segro (-4.5) and British Land (-4.4%) were there. As were a host of mid-cap FTSE 250 real estate firms, including Warehouse REIT (-8.3%), Tritax Eurobox (-8.3%) and Urban Logistics REIT (-7.1%).
 
It’s been said that REITs can act as bond proxies, and that the slump in these stocks reflected the hammering taken by government bonds.
 
Elsewhere in the property space, FTSE 100 housebuilders Barratt Developments, Berkeley Group, Persimmon and Taylor Wimpey, which initially rallied on the stamp duty news, soon fell back to end the day underwater. Online property portal Rightmove (-4.5%) also suffered.

Global fears

Oil heavyweights BP (-5.5%) and Shell (-5.3%) sank as the oil price fell to levels last seen before Russia’s invasion of Ukraine. This on fears not only about the UK economic outlook, but also the prospects for other major economies, like the US.
 
The same fears sent mining companies’ shares down. Anglo American (-5.9%), Antofagasta (-5.9%) and Glencore (-5.8%) joined BP and Shell on the FTSE 100 top 10 fallers list.

The FTSE risers

A big theme on the risers board was the prominence of stocks in the healthcare sector. This sector is considered ‘defensive’ — largely shielded from fluctuations in the wider economy.
 
Shares of AstraZeneca (+0.8%), rival pharma firm GSK (+1.3%), and the latter’s recent consumer health spinout Haleon (+4.3%) were in demand. And the theme continued among FTSE 250 stocks, with private hospitals specialist Spire Healthcare Group (+1.1%), Worldwide Healthcare Trust (+1.1%) and Hikma Pharmaceuticals (+0.8%) all on the mid-cap top 10 risers list.

Investment companies

Another theme among the FTSE risers was the prominence of investment companies focused on the economic growth potential of Asia and emerging markets. These included Fidelity China Special Situations (+1.3%), VinaCapital Vietnam Opportunity Fund (+0.6%), Schroder Oriental Income Fund (+0.6%) and Templeton Emerging Markets Investment Trust (+0.6%).
 
There was even greater demand for hedge-fund-style investment companies with strong records of making money in times of uncertainty. Pershing Square Holdings (+1.6%) was the FTSE 100’s fourth-biggest riser and BH Macro (+4.1%) topped the FTSE 250 leaderboard.

What should investors do now?

First, I think it’s worth noting that the FTSE 100 fell below 7,000 during mini-budget day. This compares with an all-time high of over 7,900 in May 2018. If history is any guide, the FTSE 100 will sooner or later reach and surpass that previous high.

Second, the mini-budget day risers and fallers are a reminder that all sectors have their days in the sun. But by buying discount shares of diverse, well-managed businesses — often in times of uncertainty — investors can raise the overall potential of their long-term returns.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Graham has no position in any of the stocks mentioned in this article. The Motley Fool UK has recommended British Land Co, GSK plc, Haleon plc, Hikma Pharmaceuticals, Landsec, Rightmove, and Warehouse REIT. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Should I buy these UK shares for my portfolio?

This Fool has been searching for ways to capitalise on the commodity moves via UK shares. Here’s what he’s watching.

Read more »

Illustration of flames over a black background
Investing Articles

Just released: April’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

A senior group of friends enjoying rowing on the River Derwent
Investing Articles

£9,000 in savings? Here’s a FTSE 100 stock I’d buy to target a £30,652 annual second income!

Our writer highlights one top FTSE 100 share that he thinks could help create a portfolio large enough for a…

Read more »

Light bulb with growing tree.
Investing Articles

62% down! Is the Ceres Power share price now a green energy bargain?

Annual results from the green energy firm showed a company on the cusp of doubling sales. So why has the…

Read more »

Investing Articles

3 mid-cap UK defence shares to consider buying in 2024

Defence budgets are soaring as global conflicts increase the threat landscape, so I'm examining the value proposition of three defence-related…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Hargreaves Lansdown investors have been buying dividend stocks BP and Shell. Should I?

Cherished dividend stocks BP and Shell have outperformed the FTSE 100 index so far in 2024. Paul Summers takes a…

Read more »

Young Asian man shopping in a supermarket
Dividend Shares

A 5% yield? Here’s the 3-year dividend forecast for Tesco shares

Jon Smith flags up the positive momentum for Tesco shares following the release of the full-year results and looks at…

Read more »

Investing Articles

Yields up to 12.3% 3 top shares investors should consider for a second income

Searching for ways to make a market-beating second income? These popular dividend stocks are worth serious consideration, says Royston Wild.

Read more »