Markets avoid post-rally pullback and Persimmon is building back income credentials

“It’s always a bit nerve-wracking for markets the day after a mega-rally such as we saw on Monday. The fear is that investors got carried away and bid up prices too far, and then reality sinks in and equities fall back,” says Russ Mould, Investment Director at AJ Bell.

“So far, it’s encouraging that Western markets are generally holding up the day after the vaccine-inspired stock surge. The FTSE 100 nudged further ahead, rising 0.5% to 6,218.

“Germany’s DAX index held firm while Spain’s IBEX 35 advanced 0.4%. Asian markets were playing catch up as they had already closed by the time Pfizer’s news came out yesterday, so we’ve seen the Hang Seng rise 0.9% and the Nikkei 225 advance 0.3%.

“These movements are nowhere near the scale of the gains seen in Western markets yesterday which is perhaps a surprise. It could be that investors in Asia have had time to weigh up the news and read the commentary that there is still more testing to be done before we can be sure the vaccine works and is safe.

“Yesterday’s market surge was arguably a knee-jerk reaction to the potential game-changing news with more consideration paid to the potential rewards than the risks.

“That said, the vaccine news from Pfizer was very encouraging and investors have every right to be more bullish. After all, the stock market is all about pricing in what people think might happen, not what’s already happened.

“The UK market showed a continuation of yesterday’s trends. Technology stocks remained out of favour as investors looked for better value elsewhere in the market. Energy, industrials, mining and healthcare were firmly in demand.

“Rolls-Royce was the top riser on the FTSE 100, up 15% to 115.35p. That means the stock has now increased three-fold since the start of October as investors react to the recent fundraise which helps to shore up the balance sheet and now price greater prospects of economic recovery aiding Rolls-Royce.”

Persimmon

“Day by day the income credentials of the housebuilding sector are being rebuilt. Today it is the turn of Persimmon which announces enhanced dividend plans for the current financial year.

“The release of substantial pent-up demand built up in the first lockdown continues to be reflected in substantial growth in sales helping underpin this return to a place in income investors’ hearts.

“The decision to step up its pay-out plans also reflects a very strong balance sheet and will support hopes the company will return to pre-covid dividend levels next year – we will find out for sure in a promised update when Persimmon announces full-year numbers in March 2021.

“The strength of demand is helping to provide visibility – with many homes forward sold for next year.

“Like several of its peers Persimmon is buying land, potentially positioning it to benefit from stronger returns as homes are sold from land bought at depressed levels.

“Although interestingly its outlay has been less than some of its peer group, implying a greater degree of caution.

“The company also continues to work to address historic failings in customer care and build quality – with its retention scheme allowing customers to hold back funds to deal with any snags that arise.

“An acknowledgement that this is ‘helping to drive cultural change’ in the business suggests it knows there is still work to do in this area.”

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