I think these FTSE 100 shares could bounce back after recent heavy price weakness. Here’s why.
Taylor Wimpey
Despite hopes of sustained interest rate cuts, Taylor Wimpey‘s (LSE:TW) share price has dropped 14% over the last year. It largely reflects a gloomy outlook for the UK economy and what this could mean for sales of new-build homes.
My view, however, is that interest rates should continue falling over the short-to-medium term, which could spark a sustained a recovery in the homebuilder’s shares, although that’s not guaranteed.
Last month the Bank of England (BoE) kept its benchmark lending rate on hold at 4.25%. This was expected, but the overall decision of the rate-setting Monetary Policy Committee was more doveish than predicted. Six voted for a freeze and three wanted a cut.
With Britain’s economy in the doldrums and inflation heading lower, I think a flurry of BoE cuts is on the cards.
Rate reductions have already had a transformative effect on the housing market since they began last summer. Taylor Wimpey’s latest trading statement showed an 12% year-on-year improvement in its order book, to £2.3bn, between 1 January and 27 April.
More recent government data on the broader housing market remains encouraging too. The number of UK residential transactions leapt 25% month on month in May to 81,470. Sales have also been helped by an intensifying and bloody rate war among Britain’s mortgage providers.
I expect conditions to remain highly supportive in 2025 and 2026.
Diageo
Diageo‘s (LSE:DGE) share price has dived by an even sharper 26% during the last 12 months. It’s declined on fears of enduring pressure from trade tariffs that could raise costs and dent demand in key regions.
This isn’t all, as uncharacteristic weak demand for its premier drinks like Captain Morgan and Smirnoff has also weighed.
On the plus side, news of improving sales in the March quarter, allied with signs of trade breakthroughs between the US and its major trade partners, suggest things are looking brighter.
But these aren’t the phenomena I’m looking at here. Instead, I’m considering whether fears over the long-term impact of weight-loss jabs on alcohol demand — another significant drag on Diageo’s shares recently — could have been overstated.
Demand for medicines like Wegovy and Ozempic has soared in recent times. In Diageo’s huge US market, some 6% (representing 15.5m adults) are now using injectable treatments, according to Gallup. And the number is rapidly growing, casting a shadow over future demand for alcoholic drinks.
But health concerns over these treatments are rising. According to the UK Medicines and Healthcare Products Regulatory Agency (MHRA), Wegovy and Ozempic alone are linked to 113 cases of pancreatitis and one fatality.
Regulators in other regions (like the US and European Union) are also evaluating claims of side effects, including mental health disorders and deterioration in eye health.
This is a story I think investors should keep a close eye on. We’re not yet at the point where restrictions on these drugs are being discussed. And we certainly don’t want to celebrate adverse side-effects of any drug designed to address health problems. But such developments could give a substantial boost to investor sentiment towards drinks producers like Diageo.
