Markets rebound on Fed bond buying and $1 trillion stimulus chatter, and Ashtead’s shares surge as it stays progressive on dividends

“Just as markets were starting to weigh up the prospect of another prolonged sell-off amid coronavirus second wave fears, talk of a $1 trillion infrastructure plan being considered by the Trump administration has put a rocket under stocks again. Also driving sentiment was the start of the Federal Reserve’s corporate bond buying programme,” says Russ Mould, Investment Director at AJ Bell.

“Last night in the US, the S&P 500 jumped 0.8% while the Nasdaq advanced 1.4%. However, much larger gains were seen across the UK and Europe on Tuesday with investors optimistic that governments and central banks still have a few tricks up their sleeve to provide further support to the markets.

“The FTSE 100 jumped 2.5% to 6,213 with the index driven by gains in the oil, consumer goods, tobacco and construction sectors. This is interesting as it shows investors have been drawn to a mixture of defensive and more risky sectors, rather than just one of them being in vogue.

“Share prices gains were seen across all parts of the market with only two FTSE 100 stocks in negative territory: insurer Admiral (down 0.5%) and healthcare group Hikma Pharmaceuticals (down 0.4%).

“Helping to drive investor sentiment was news from several companies about their reopening plans, making investors more optimistic about their near-term earnings potential. Cineworld’s jumped 6.7% after it said its cinemas would reopen in the coming weeks, while Greggs advanced 3.6% on news that it would reopen around 800 shops on 18 June.

“In overseas markets, Germany’s DAX index traded 2.5% higher while in Asia, Hong Kong’s Hang Seng index advanced by 2.6% with energy, technology and consumer non-cyclicals the best performing sectors.”

Ashtead

“Tool hire business Ashtead doesn’t want to give up its proud dividend record without a fight. Having increased the pay-out every year out of the last 15, including through the global financial crisis, perhaps we shouldn’t be surprised by its decision to do so again in the face of a global pandemic.

“Before coronavirus intervened, Ashtead was on course for a record year. A very bleak fourth quarter, which included at least a month of lockdown conditions, only led to a modest drop in full year profit.

“It remains a highly cash generative business, with a very sound balance sheet and management are clearly confident that it can pick up business from less robust rivals. The decision to pause acquisitions and buybacks looks like a slight nod to the current uncertainty.

“Ashtead’s ability to sustain dividend growth in the future may have received a further boost overnight with reports of a big new package of infrastructure spending in the US – its core market.

“The construction businesses picking up these mooted federal contracts would likely head straight to Ashtead for generators, forklifts, diggers and trucks and the like as they get to work building roads, bridges and broadband infrastructure.”

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