The FTSE 100 and FTSE 250 jumped in early trade on Friday as investors cheered a Labour victory providing the UK with an opportunity to shake up its economy under Keir Starmer’s leadership.
Labour won a bumper 412 seats on a platform of growth that resonated with both voters and the markets.
The FTSE 100 surged in the early hours of Friday’s session before falling back. However, it was the more UK-centric FTSE 250 that produced a sharp rally as investors jumped into shares well-placed to benefit from Labour’s growth agenda.
A relief rally in the pound demonstrated financial markets’ views on the election result, yet the stronger pound acted as a counterweight to the FTSE 100’s housebuilders and retailers with overseas earners such as HSBC, Rio Tinto, Shell and BP falling on the day.
The FTSE 100 was up just 0.05% at the time of writing, while the FTSE 250 gained 1.2%.
“There is always a sense of nervousness ahead of markets opening the day after a general election, but we only get extreme volatility when investors are caught by surprise. This time round, there was nothing to get heads spinning as the result was widely expected. Instead, investors appeared to welcome the news with open arms,” said Dan Coatsworth, investment analyst at AJ Bell.
“Political uncertainty is over and this removes one of the key risks around UK equities, so it’s feasible that more domestic and foreign investors are now looking for opportunities on the market. This suggests today’s reaction might not be a one-day sensation.”
Coatsworth continued to explain the Labour government could be a turning point for the UK’s beleaguered equity markets:
“Theoretically, we could see a snowball effect whereby the more the UK market goes up in response to the election, the more people start to get drawn in. There is no guarantee that will happen, but such a response would certainly be long overdue given how UK equities have been unloved since the Brexit vote in 2016.”
Housebuilders were clear winners on Friday with Persimmon, Barratt Developments, Taylor Wimpey, and Vistry dominating the FTSE 100 leaderboard.
“Housing was a hot topic during the election campaign, and with Labour vowing to kickstart the development of thousands of additional new homes, the pressure will be on to get the ball rolling. UK house builders such as Persimmon and Barrett have suffered steep drops in share price following interest rate hikes, so they will be hoping for a reversal in fortune if and when these initiatives get underway,” said Mark Crouch, analyst at investment platform eToro.