FTSE fights back and Taylor Wimpey remains in a sweet spot

“The FTSE 100 continues to fight back after a sell-off in mid-July, rising another 0.4% to 7,133. If it can break the 7,217 intraday high seen on 16 June, then the index would be trading at levels not seen since February 2020 when global markets started to crash as the pandemic spread,” says Russ Mould, Investment Director at AJ Bell.

“Hitting that level looks possible this summer in the absence of any major negative news to trouble investors.

“Sadly, it doesn’t take much to rattle the markets, and there are plenty of reasons to remain cautious, such as many stocks trading on elevated valuations and the Delta variant continuing to cause disruption.

“The UK market on Wednesday was driven by BP extending gains for a second day following yesterday’s results. Banks and housebuilders were also in vogue.

“What’s interesting is how demand for certain industries has remained strong post-lockdowns. There was a feeling that some sectors would see a drop-off as life starts to return to normal, but in many cases that hasn’t happened.

“Taylor Wimpey is saying that property demand remains strong despite the stamp duty holiday boost being withdrawn, and Marshall Motor says that people are still rushing to buy cars. There remains a fundamental lack of supply of houses versus demand, which is positive for property prices. Used vehicle prices have shot up over the pandemic and but in this case, it seems inevitable that they will drop back down at some point.”

Taylor Wimpey

“Taylor Wimpey has one eye on the present to capitalise on the property market boom and one eye on the future as it races to place as many flags in the ground as possible. Snapping up large amounts of land is a clever move as it lays the foundations for future profit creation.

“Ask anyone who is trying to buy a house and they’ll tell you either how competitive it is, or how prices are going up. But if you’re on the other end of the equation, now is a brilliant time to be building and selling properties.

“Taylor Wimpey has reported a record half-year, albeit helped by some completions which were delayed from the previous six-month period. Fears that the property market would slow down as the stamp duty holiday winds down have proven wrong as it looks as if appetite is still very strong. That’s got to be helped by lots of people having saved cash during lockdown, giving them a greater chance of having enough money to put down as a deposit on a home.

“Inflation is picking up around the world and building materials have been one of the victims of this trend. Taylor Wimpey seems to have brushed off this factor because the negatives are offset by rising selling prices for its homes.

“The other worry in the market towards housebuilders has been the impact of the furlough scheme on property demand, with some potential buyers theoretically sitting on their hands until they have a clearer idea over job security. That is still a risk, but perhaps not as big a one as some people thought a year ago. Furlough has been concentrated on retail and hospitality sectors where wages were generally low, with these types of workers more likely to rent than buy a home anyway.”

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