60 seconds on the outlook for equities after the UK election
Initial flight to safety
The initial reaction of the market has been a flight to safety whereby the market has been buying stocks with international earnings.
These stocks have outperformed so far, meaning the FTSE 100 has actually gone up.
In contrast, some of the mid-cap, domestic, cyclical stocks have suffered. This is because the market is concerned the weakness in sterling will impact their margins and also the spending power of their underlying customers.
Could sterling strengthen?
Looking forward, there is a prospect of sterling strengthening at some point, possibly if markets decide that reflation could result from the government loosening the purse strings.
The other thing markets will have to calibrate is to understand better the prospect of a Labour government at some point. In so doing they will need to understand their policy on nationalisation, regulation and other intervention.
Take advantage of volatility
As always with these political events - and we’ve had many of them in the last year or so - what we try to do is to take advantage of market volatility to buy companies trading on cheap valuations
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.