Market reaction to new lockdown measures

“The main European market indices gave a relatively muted reaction to the latest lockdown restrictions in England, Portugal and Austria as arguably these measures were widely expected by investors,” says Russ Mould, Investment Director at AJ Bell.

“It is important to remember that approximately three quarters of the FTSE 100 generates its earnings overseas, so a new England-wide lockdown is less of an issue to the index although it does affect investor sentiment.

“That might explain why the FTSE 100 only slipped 0.2% to 5,566 whereas the more UK-focused FTSE 250 index fell by a greater amount, down 0.6% to 17,116. One must also consider that the market has already priced in a lot of bad news, as reflected by last week’s terrible showing for equities.

“Drilling down into the UK equities space, it is clear to see that investors are sifting through the market looking for lockdown winners and dumping lockdown losers.

“Supermarkets are going to be in demand once again, with chatter that big queues already started to form over the weekend. Sales could improve for this sector over the coming month, but costs are also likely to be higher as companies likely reintroduce measures to help keep customers safe and crowds under control.

“The key threat to this potential sales rally is the weather. People might be less willing to queue in the Autumnal wind and rain and so supermarkets may not see as strong a hike in sales as they saw during the Spring when the weather was more favourable.

“Ocado jumped 6% on Monday as it upgraded earnings forecasts and investors took the view its technology for online grocery systems would be in greater demand as new lockdown measures reemphasise the importance for food sellers to have a robust online service.

“Gear4Music was also in demand, up nearly 5%, as investors consulted the playbook from the March to May market rally and looked for companies which did well last time round. Gear4Music saw strong sales and people stuck at home turned to musical instruments to keep them busy.

“Expectations of greater demand for takeaway food drove up Just Eat’s shares by 3%. However, Domino’s Pizza didn’t join in the party with its shares slipping 0.7%. That’s unexpected as one would have thought it would be a beneficiary of lockdown conditions.

“The retail sector’s recovery will be derailed by the new English lockdown, particularly companies whose brand is more associated with the high street than online. With its shares falling 2%, Card Factory would normally be warming up for its crucial festive season in the coming weeks. Alas its Christmas card sales now look as if they will be dramatically down on last year. While Card Factory does have an online channel to act as support, the same cannot be said for Primark owner Associated British Foods whose shares drop nearly 3%.

“Heavily indebted leisure companies saw their shares crumble including Marston’s and Cineworld both down around 10%. JD Wetherspoon’s dived 8% with the company dropping its real ale pint prices to 99p just to get rid of stock before pubs shut from Thursday. Importantly, many pubs had a lifeline during the previous lockdown by selling takeaway drinks – that’s not allowed this time round.

“The Government seems to want to keep the property market ticking over and so shares in housebuilders and estate agents only dipped slightly on the new England lockdown. Banks were worse hit on investor fears of more bad debts and more damage to the economy.”

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