Post-election – business as usual

The FTSE 100 rose last Friday by 2.32% to 7046.82, as investors welcomed the election result – both the return of the Conservative Party and the fact that it had an overall majority.

Some of the sectors potentially threatened by a Labour victory also rallied, so banking stocks as well as utilities rose significantly. House builders also did well, as the possibility of rent caps and a Mansion Tax disappeared.

Since then, things have eased back a little as the Greek situation reared its head again but overall it could be said that it’s business as usual once again.

Interestingly, despite the polls suggesting an unpredictable result, the run up to the election did not see the markets displaying their customary signs of jitters. This is probably due to the growing realisation that stocks are increasingly less affected by domestic concerns. The oil price, the viability of the EU and the actions of the Federal Reserve – all matter more to investors than the relatively small differences in UK government policy. Combined with the fact that the FTSE 100 generates over 75% of its revenues outside the UK and you can understand why investors are less fazed than they used to be by changes of government at home.

Another reason that investors were perhaps relaxed pre-election is the fact that any volatility tends to be short-lived. For example, there was a 55% fall in the market from February 1974 to the end of the year but you would still have made all your money back again in the following four months.

Uncertainty of course can be good for investors, as it can create buying opportunities – luckily for them, the forthcoming EU referendum and the sorting out of the Scottish situation will provide a little more uncertainty over the coming months and years. With bond yields beginning to rise and hence prices falling, it could also be that the long bull market in bonds is coming to an end.

So it’s business as usual post-election. For investors, despite the political noise and distractions along the way, the most sensible thing to do, as always, is to take a long-term view and to plan your future.

For help with your financial planning, contact Kellands.

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