Equity index movers 31 May 2017

Global markets were fairly quiet at the end of the month, the FTSE 100 closed down less than 0.1%, after making an earlier failed attempt at a new record high. “Sell in May and go away”, so the saying goes, but not this month. Although it ended on a whimper, May has wrought some decent returns for the FTSE 100, which has risen more than 4%. Across the Atlantic gains were slimmer, the Dow rose less than 1% over the month after the Trump slump. Although there were significant inflows into European indices, the Eurostoxx index actually fell over the course of the month.

What’s weighing on the FTSE?

The failed attempt at another record high for the FTSE 100 was scuppered by weakness in the energy and materials sectors, with financials and real estate also having a bad day. In contrast, the healthcare and telecoms sectors’ were the top performers, suggesting an overall risk off tone and an investor desire to own defensive stocks.

Interestingly, miner Rangold was the top performer on the day, rising nearly 3%, followed by Mediclinic (Tuesday’s weakest performer) and Barratt Developments. The housing sector is looking cheap on a P/E basis, which could bode well for this sector. When we get to this mature phase of a market rally, investors’ tend to be on the lookout for equities with a cheaper valuation, which could make the housing sector an attractive investment opportunity for some time to come.

In contrast, Rio Tinto, BHP Billiton and Glencore were the weakest performers, as the oil and oil products markets saw sharp declines; Brent and WTI were down more than 2% on the day. Sugar and coffee prices were also sharply lower. If we continue to see declines in the commodity space, we would expect further downside for the FTSE 100.

Financials weigh on the Dow for another day

It was another day of modest losses for US indices. The Dow was dragged down yet again by the financial sector, with Goldman Sachs and JP Morgan experiencing another day of selling, on the back of the flattening US yield curve. On the upside, Pfizer was the top performer, which also suggests a defensive tone to investor behaviour.

As we start a new month, there are signs that the global stock market rally is starting to slow down. That has been evident in the US and Europe, however, the FTSE 100 managed to push ahead in May. This makes the UK index vulnerable as we start a new month, in our view, due to upcoming domestic political risks and struggling commodity and financial sectors that have large weightings in the FTSE 100.