Will there be a post General-Election boost for UK stocks?

At long last, the political earthquake (or reckoning for some) that all the polls have been alluding to, is here.

The public will vote today for the next UK parliament. The last general election was held in 2019 before the worldwide pandemic. Much has changed since. The early jubilant mood of the Johnson administration soon gave way to a chaotic covid-hit government. Despite his popularity, ‘Partygate‘ led to Johnson’s swift downfall a mere three years later. The next prime minister, Liz Truss, did so much unnecessary damage to the national economy that she failed to last 50 days in Number 10 (49 days to be exact, see Truss-Lettuce countdown). That was a new low in modern politics. And people remember. They’re reminded of that disaster whenever they open their mortgage statements.

And so here we are, after 14 years of Conservative governments, to enact a change in direction. The latest polls indicate a definite win for Labour (see below). The only question is how big the party’s margin will be. Interestingly a new political group – Reform –  has gathered much support in recent days. Whether this will be enough to topple the Tories is another question that will be answered shortly.

Source: BBC

What is the market’s take on the GE? A new Labour government is perhaps priced in. The UK stock market broke out to new long-term in recent months and held on to this gain.

The FTSE All Share Index, for example, rallied to the highest level ever in the 2Q (see below). Currently on a modest pullback, a new government may instil investor confidence and renew the uptrend. The next upside target is the psychological level at 5,000. A few blue-chip stocks have been registering 52-week price high too, eg Tesco (TSCO) and Barclays (BARC). These stocks may resume their uptrends once the political uncertainty subsides.

In the FX market, there is also a small bounce in GBP-related pairs. For instance, GBPUSD reaffirm the floor at 1.260 to retest the overhead resistance at 1.2800 (see below). New long-term highs noted for GBPJPY but this is more likely due to JPY weakness rather than GBP strength.

In sum, investors are well aware of the incoming change of the UK government. They assume this could be good for the economy. But these expectations are mostly baked into most UK assets. The wait now is for the new policies to be announced in the coming weeks.

US tech stocks jump; Bitcoin struggles

UK election aside, there are a few market developments worth mentioning.

The first is that major US stock indices are continuing their upward trajectories. Both the S&P 500 and Nasdaq climbed to new all-time highs just before the Independence Day (4 July). This bull run is carried by large tech stocks like Apple (AAPL) and Microsoft (MSFT), both of which touched fresh highs this week. Even Tesla (TSLA), the laggard of the Magnificent Seven, put in a powerful rebound recently to remind investors that it is still a part of this elite group. Its share price jumped a stunning 44 percent in just two weeks.

While the tech party is still going on, crypto is struggling. Bitcoin, the largest of these coins, saw a sharp decline. Prices unexpectedly crashed through the psychological $60,000 support again to form a top-heavy pattern (see below).

The reason I’m highlighting Bitcoin’s chart is because BTC is one of the most speculative instruments out there. It benefits massively from the ‘risk on’  sentiment. While the US stock indices are making new highs, it fails to capitalise further from this. Could Bitcoin’s chart deterioration a harbinger of a corrective action in the market?

Right now, Bitcoin prices are resting on the May pivot support at $56,000. A further break of this floor will affirm the top formation. Of course, given Bitcoin’s extremely high volatility any intra-day dip could be just a fake breakdown. Who knows, we may even see a powerful rebound off this level, which would prolong the sideways pattern at $56-72,000.

That said, I find Bitcoin’s softening prices and diverging performance against Nasdaq interesting. Buy the dip? Only if you can afford to hold long term.