Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
The Biden bounce on the US stock market has reverberated around the world, with the FTSE 100 also opening with a little spring in its step.
President Joe Biden’s move into the White House has brought the stability and certainty craved by investors following a fraught election campaign and a violent aftermath. Optimism about the $1.9 trillion emergency spending programme is still buoying markets alongside expectations the Federal Reserve will not be slow to step in with more stimulus if the US economy does not pick up.
With the virus still rampaging across Europe, there will be keen interest in indications for future moves from the ECB today. Although fresh stimulus isn’t expected given that it announced a €500 billion euro extension to its quantitative easing programme just last month, some idea about the direction of travel, if economies are forced to stay locked down for longer, would be welcome.
On the FTSE 100 banking stocks, like HSBC and Nat West, which often act as economic bellwethers, were on the front foot rising by around 2.5%. Software company Sage Group the biggest riser, up 3.5% after it said business was brisk in the first quarter, in line with expectations. ‘Stay at home’ shares like Just Eat Takeaway, Ocado and supermarket group J Sainsbury were also gaining ground, with expectations that a prolonged lockdown into the spring will keep demand for its deliveries high.
The wave of optimism currently washing through the financial markets, prompted by President Joe Biden’s inauguration, is likely to ebb if infection rates to continue to rise, the vaccines are slow to roll out and if the virus mutates further.
Already Covid-19 has wreaked huge damage on economies around the world and a recovery will be painful with plenty of set-backs expected along the way.
High unemployment rates will cause a ripple effect on consumer demand and although in the US industries like construction and green energy are expected to benefit from increased investment going forward, sectors worst hit by the pandemic such as retail, hospitality and travel are nursing injuries which are unlikely to heal for years.
There is also a disconnect between the US stock market and the wider economy because indices are dominated by technology companies. They have been boosted by the acceleration of behaviour changes and digital trends brought on by the pandemic. But the spectre of greater regulation now hangs over the sector. New legislation will take time to be enacted, but the winds of change are blowing in the direction of a much tougher stance towards tech, which is likely to put pressure on some valuations down the line.