Taking a look at the UK 100 ’s winners and losers for the week can serve as a good gauge of how investor sentiment is tilted into the weekend. Following a global equity rebound, the UK’s blue-chip index having bounced 350pts from a flirt with 2018 lows, you might well presume the pendulum has swung back to bullish optimism. We have rebounded, but how have we rebounded? Let’s look at some stats to see.

Firstly, as we write, only 19 UK 100 names are in the red for the week. An 81:19 ratio of positive to negative is a strong statement with which to close the week. Secondly, of those 19 losers, only 2 have dropped by more than 5%, only 10 have fallen by more than 2% while 5 are only -0.5% offside.

Thirdly, the composition of those 19 losers includes several companies considered defensive, non-cyclicals (e.g. tobacco, utilities, pharma, consumer staples, beverages, defense and Precious metal miners), whose shares tend to perform well when equity markets are struggling. And many of these did fare well, or at least are holding up well, while equity markets were correcting lower in October. This suggests a reversal of investor interest, in-line with the UK Index ’s own rebound, away from defensives back towards more risky assets.

This reversal has likely been helped by 19 of those losing names accounting for 31% of the UK Index Index by weight. This cohort is made up of several heavyweights such as British American Tobacco, Imperial brands, Reckitt Benckiser, Unilever, GlaxoSmithKline, AstraZeneca and Diageo.

But it wouldn’t be fair to focus only on the stats for the week’s losers, just to support the narrative of a market rebound. We also need to check that there was indeed positive momentum among riskier names, supporting our theory of sector rotation out of perceived safer/safe-havens. We already know that 81% of index components are positive for the week, but what of the make-up? Firstly, the big winners are up more than the losers were down, with 6 names up by more than 10%, while 40 companies are up more than 5% and 65 up more than 2%. So the split is certainly positive.

Secondly, further supporting our theory, we find the biggest winners include several names that are considered risk-assets – sensitive to economic growth –  such as copper miner Antofagasta (+12%), Asia-focused bank Standard Chartered (+11.5%), housebuilder Taylor Wimpey (+10.3%), diversified miner/trader Glencore (+9.2%) and fellow housebuilders Barratt Developments (+9.2%) and Persimmon (+8.6%). We might have liked to have seen a few more Miners/Banks, but we note Banks up 3-11% and Miners up 6-12% which remains supportive of our analysis.

Many of the shares up the most this week are merely recouping some of the lost ground from October’s near 10% sell-off, however, some are up more this week than they were down 3-26 October. Compare the share price movements of name like Taylor Wimpey up 10.3% this week compared to down 8.8% 3-26 Oct; Berkeley Group +9.5% vs -7.1%, Just Eat +8.4% vs -6.7%, Paddy Power +11.1 vs -5.1% and easyJet +8.5% vs -3.9%. Which puts some of them back to breakeven, or even higher than they were at the start of the month.

The week looks set to close with traders on the front foot, with most stocks bouncing from lows. The split looks to favour growth stocks rather than defensives, which would suggest a return of genuine risk appetite after a healthy market correction. This should give the bulls confidence that this reversal has legs. As for the bears, the recent flirt with 2018 lows may have got them excited, but they’ll need to see another solid sell-off and a test of recent lows before getting too excited about seeing the lows of late and mid 2016 any time soon.

To stay up to date on UK Index movements/trends with quality trade opportunities (e.g. ranges, momentum, breakouts, support) sent straight to your inbox, get access to our award-winning research now.

Mike van Dulken, Head of Research, 2 Nov 2018