How will the stock market react to the general election outcome?

With a new government entering parliament today, how will the stock market react? Here this Fool delves deeper into the issue.

| More on:

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.

Image source: Getty Images

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.

Yesterday the UK population took to the polls to vote for our next government. As it had been predicted, the Labour Party won with a resounding majority. But putting politics aside, some may be more concerned about how the stock market will react to the news.

An early bounce

As I write, the FTSE 100 is up around 0.3%. That comes on the back of a 0.9% bounce yesterday. The pound also had a strong day, gaining 0.2% against the dollar.

It could be said that a rise in the Footsie was expected. There have been nine general elections since its inception. Following eight of those, the index has increased the day after the vote. The only exception was in 2010 when the Conservatives didn’t get an overall majority. What this shows is that the market likes stability/certainty. And Labour’s landslide win gives that.

Should you invest £1,000 in NatWest Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if NatWest Group made the list?

See the 6 stocks

Looking beyond that

I’m sure in the coming weeks there will be an abundance of noise about the potential implications a Labour government will have for the market. But I’m looking beyond that.

I’m on the hunt for long-term value. Regardless of which party is running the country, I’m confident that UK shares look severely undervalued at the moment.

For example, NatWest (LSE: NWG) is piquing my interest. It’s been on my watchlist for a while and I plan to take a closer look at the stock.

Created with Highcharts 11.4.3NatWest Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

First, it will be interesting to see what Labour plans to do with the shares it will be inheriting. The government still owns a 20.9% stake in the bank from when it bailed it out in 2008. Former Chancellor Jeremy Hunt had announced plans to offload its remaining stake via a retail sale. Understandably, these plans were put on hold after the election was announced.

There’s talk that the remaining shares will be sold at a discount to the market price. While that means it could be tempting to wait until then, I think NatWest shares look like great value right now.

The stock trades on just 7.3 times earnings and 7.6 times forward earnings. While all UK banks look like good value at the moment, that’s still dirt cheap. Its price-to-book ratio is just 0.7, where 1 is fair value.

Passive income

Then there’s the passive income angle. The stock has a meaty dividend yield of 5.2%, covered comfortably by earnings. Its payout grew by 26% last year to 17p. Alongside that, earlier this year the bank announced a fresh £300m share buyback programme.

Better to hold off?

They say good things come to those who wait. So, it could be smarter for me to hold off and see what plans Labour has for NatWest. I could invest today only for the government to announce it will sell its shares for a lot cheaper than I paid. That’s a risk. There are other risks to consider too, such as ongoing interest rate uncertainty.

Missing out on gains

But I like the look of NatWest shares today. I could wait until a government sale. But what about the potential gains and passive income I could miss out on? At least, that’s my thought process.

The stock has soared 48.2% this year. It clearly has momentum on its side. I’m strongly considering opening a position in the British stalwart.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

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.

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Investing Articles

Up 30% in weeks, does the BAE Systems share price still offer value?

The BAE Systems share price has been on a tear over the past couple of months. This writer sees limited…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Hunting for shares to buy as the market trembles? Remember this!

After a choppy week in global stock markets, our writer goes back to basics in his hunt for bargain shares…

Read more »

Investing Articles

3 simple principles to help build wealth in an ISA

As a new tax year opens up new ISA allowances for many investors, our writer shares a trio of things…

Read more »

Investing Articles

US trade tariffs: what they could mean for UK shares like Ashtead, Compass Group, and Experian

US trade tariffs continue to rock global markets, and the UK is no exception. Our writer considers how a new…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Dividend Shares

The Trump slump has smashed these FTSE 100 shares!

After a rough week for US and UK shares, investors have been shaken. But now these FTSE 100 stocks have…

Read more »

Investing Articles

£10,000 invested in Rolls-Royce shares 5 years ago is now worth…

Rolls-Royce shares have been on fire since April 2020. Part of this is the result of pandemic restrictions lifting, but…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

£10,000 invested in Tesla stock at its peak in 2024 is now worth…

Over the last few months, Tesla stock has lost nearly half its value. Here, Edward Sheldon explores a few takeaways…

Read more »

Investing Articles

Is the S&P 500 heading for an epic stock market crash?

Our writer shares his thoughts on a very crazy time for the S&P 500 and the wider stock market. How…

Read more »