Did the last Budget sink the FTSE 100? On the surface, the answer to this question would seem like a big fat no! The Footsie is up 33% since October last year.
But a £40bn tax bill, much of which comes from the UK’s biggest companies, has an impact on operations. It’s hard to tease out the details as the costs have been shared across earnings, lack of wage increases and higher prices. But with the CEO of BT complaining about “government-inflicted costs”, the CEO of Ryanair threatening the economy is “doomed to continue to fail” and the CEO of Tesco saying “enough is enough”, I think it’s fair to say the last Budget was not a welcome one.
Another round of billions set to be added to the public purse this month. So I thought I’d ask that modern day Oracle of ChatGPT to see what it thought on the matter.
The good and bad
I asked: “What might the Autumn Budget mean for the FTSE 100?” Here are some of the most important bits I took from it.
- “The FTSE 100 is unlikely to be thrown off its course dramatically solely because of the Budget — its global earnings base gives it some cushion.
- If the Budget is seen as fiscally credible (tax rises/constraint rather than giveaways), that could provide a tailwind to the FTSE 100 via improved investor sentiment and possibly lower yields.
- If the Budget dampens UK growth significantly, domestic‐focused stocks (not major part of FTSE 100) may suffer, but the global firms could offset.
- Currency impact: if the Budget weakens the pound, that could be a boost; if it strengthens it, that may remove a tailwind.”
I think this highlights what these large language models are good at – namely, synthesising and simplifying large amounts of data.
But the lack of anything past surface level detail also shows where it struggles. That’s going into depth on a particular subject. I’ll also add that they’re still prone to hallucination, so their computer-generated utterances can never be taken as gospel. And they can tend to be all things to all people.
Worth a look
I do think that some of the international-focused stocks on the FTSE 100 could benefit after the budget. A stock like miner Rio Tinto (LSE: RIO) is one example that could be worth considering.
While listed in London, the UK is a minor market accounting for less than 2% of revenues. This means a weakening pound benefits it. A weakening in the UK economy is less impactful too.
These are some of the advantages to investing in such huge, diversified businesses. But the size of the company (a £92bn market cap) can also be a downside. That’s because of the difficulty of effectively managing such a large organisation.
The dividend yield stands at 5.28%, above the Footsie average. The price-to-earning ratio of 11.3 looks reasonable. The share price is near all-time-highs after rising 13% in the last year too. That’s perhaps a sign growth is on the agenda in the coming years.
