General election results - market reaction

The Conservative majority win at the general election has driven a rally in the pound and UK domestic stocks. The currency jumped 2.7% to $1.34189 compared to last night on confirmation that Boris Johnson’s party had been victorious and that this outcome removes several key risks that have been hanging over the UK stock market.

It removes the threat of Labour trying to renationalise many sectors, explaining why shares in Royal Mail jumped 8% to 250.4p, transport companies rallied – Go-Ahead up 9% to £21.34 and Stagecoach up 14% to 150.5p – and utility stocks were back in fashion, including Centrica up 14% to 92.04p.

The fact that there also won’t be a hung parliament has given support to equities. The market now has more confidence that Johnson should be able to pass a Brexit deal and for the UK to formally leave the EU at the end of January 2020.

All these factors helped the FTSE 250 to trade 4.9% higher at 21,839 on Friday, triggering the starting gun for investors to start looking at UK equities again.

The FTSE 100 put in a less excitable showing – up 0.9% to 7,341 – as a stronger pound is bad for its large number of overseas earners. The performance might have been a lot worse had it not been for progress with US/China trade war negotiations which did give the index some support.

The market is now digesting the prospect of a stronger UK economy as a result of the Conservative victory which explains why shares in banks, housebuilders, leisure companies and retailers jumped following the General Election news.

Banking group Lloyds soared by 12% to 68.43p, housebuilder Taylor Wimpey advanced by 11% to 192.5p, pub company Marston’s moved 5% higher to 130.6p and retailer Next rose 5% to £71.86.

Among the big foreign earners tobacco company Imperial Brands fell 1% to £16.70 and support services group Bunzl eased back 0.5% to £20.61.

There still remains much uncertainty with regards to Brexit and so today’s market fanfare may not necessarily be setting the tone for how all of 2020 will play out.

Markets hate uncertainty and ultimately Brexit will become centre-stage again. Investors have been served a distraction in the form of the General Election in recent weeks but the focus will now have to shift back to the structure of any trade deal and what could happen to the UK at the end of the 2020 transition period.

Short-term the Conservatives have discussed increased spending which could give the economy a boost. Longer-term still remains uncertain and so markets are not going to keep opening bottles of champagne to toast a new dawn for the country.

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.