Stock market reaction to new lockdown measures and Morrisons sees festive sales spike

“The stock market reaction to a new lockdown in England could have been a lot worse, but it is fair to say there were plenty of signs in recent days that full lockdown was coming, such as similar restrictions being announced in Scotland yesterday,” says Russ Mould, Investment Director at AJ Bell.

“Quite a few UK domestic businesses saw their shares sell off yesterday afternoon amid speculation about what Boris Johnson might announce in his evening speech, so an element of the bad news was already priced in before markets opened today.

“Nonetheless, given the severity of the lockdown restrictions announced by the Prime Minister, one might have expected a repeat of last year’s trends with lockdown losers slumping on the stock market and beneficiaries rallying. That’s not entirely the case this time round.

“There was weakness in the likes of Greggs which will lose out from the likely sharp drop in footfall and slump in commuter traffic. Trainline’s shares slipped as non-essential travel is discouraged; and Barclays saw its share price dip on market fears of rising bad debts and interest rates staying lower for longer which is bad for the banking sector. However, the scale of these share price declines is very minor.

“What’s surprising is how shares have risen in both tour operator TUI and pubs group Fuller Smith & Turner given their businesses will once again be severely disrupted by the Prime Minister’s latest actions.

“Missing in the Prime Minister’s speech last night was new support measures for businesses. Relative optimism among investors – with the FTSE 250 trading 0.3% higher at the market open on Tuesday – suggested the market either believed that Chancellor Rishi Sunak had a few tricks up his sleeve, or that the latest lockdown was widely expected and isn’t that troubling considering that covid-19 vaccines are now being administered. Remember that the stock market is always forward looking and pricing in what it thinks will happen in the future.

“Sunak has subsequently come out with more support for the retail, hospitality and leisure sectors, driving further gains in the FTSE 250 which traded 0.7% higher just after the Chancellor’s announcement.

“The FTSE 100 enjoyed a 0.3% boost to 6,592 thanks to the oil sector. Royal Dutch Shell and BP were both up by more than 2%. Also supporting the blue-chip index were British American Tobacco, HSBC and Next. Utilities were out of favour, suggesting that investors still have an appetite for riskier sectors despite the negative backdrop.”

Morrisons

“There is no question that Morrisons and other UK supermarkets are in an enviable position relative to many other businesses and that is borne out by its positive festive update.

“If the company hadn’t already decided to pay back its business rates relief it would have come under increasing pressure to do so after an 8% spike in festive sales.

“Again it is a story of elevated sales matched by elevated costs as the company looks to adapt to coronavirus-related disruption – so results will merely be in line with expectations.

“Overall the company has had a pretty good crisis. Its vertically integrated ‘field to fork’ supply chain helped it to keep the nation fed, plus its early decision to offer discounts to NHS and other key workers and the sanctioning of payments to help keep small suppliers afloat both made it a good corporate citizen but also enhanced its brand and reputation.

“This has been reflected in market share gains. It has also adapted to changing shopping habits by boosting its online capability. This includes a big expansion in its tie-up with Amazon and an overall reduction in its dependency on Ocado.

“While the company has been able to adapt better than most to the pandemic, it still sees brighter days ahead in a post-covid future as additional costs fade and the fuel market goes back to something like normal.

“Thanks to the course steered by CEO David Potts, the company should emerge from coronavirus in pretty rude health.”

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