Another strong day for markets and DFS enjoys a sweet spot

“A second strong day on the markets was most welcome news. Driving the latest gains in equities was renewed hope of an amicable trade deal between the US and China. While optimism has quickly turned to pessimism on this topic many times in the past, it’s encouraging to see the two sides talking rationally again", says Russ Mould, Investment Director at AJ Bell.

“The FTSE advanced nearly 1% to 6,163, Germany’s DAX index saw similar moves, while Japan’s Nikkei traded 1.4% higher. Unfortunately, some parts of Asia didn’t share the positive tone, with the Shanghai SE Composite falling 0.4%, dragged down by weakness in telecoms, utilities and industrials.

“On the UK market, investors bid up shares in miners, energy, telecoms and financials, among many other sectors. International Consolidated Airlines was the top riser, up 5.4% as investors reassessed opportunities in the travel and leisure. InterContinental Hotels and Whitbread were also in demand.”

DFS

“A boom in sofa sales makes perfect sense. Many businesses helping to improving the home environment, such as DIY and electrical retailers, have seen a pick-up in sales during lockdown this year as people seek to improve their home comforts. DFS is also among the beneficiaries. After all, if you’re going to spend so much time at home, why put up with tatty seats, peeling wallpaper and fridges on the blink?

“This situation has put home-based product sellers in a sweet spot. But what happens now that more people are starting to return to work in offices, shops and on-location sites? It shifts the attention away from the home and perhaps pushes home improvement tasks back on the ‘to do list’ that never gets done.

“The other issue to consider is rising unemployment and how that might affect sentiment towards big ticket purchases. News headlines of job losses can make people worried about their own job security and dampen enthusiasm to want to spend hundreds of pounds on something.

“DFS has effectively had an early Christmas present and possibly seen a boost normally associated with Boxing Day and New Year sales. A flare-up in coronavirus cases during the autumn and winter could potentially sustain the current sales momentum if people are encouraged to stay working from home, but one has to wonder if DFS has already seek its peak earnings season this year.”

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