It’s been at least two days since I’ve mentioned Brexit in conversation, which for me is saying something. However, as Brexit negotiations resume this week, we’ve already had some headlines come through that have caused the FTSE 100 and FTSE 250 to react. As investors, it’s important to know not only if the market is moving, but the reasons behind the news. From this, we can try and forecast the market reaction going forward to similar stories. Past performance doesn’t always predict future returns, but it often gives us a good indication!
What’s the latest Brexit news?
Yesterday it was announced that a top government lawyer (Jonathan Jones) was quitting, the day before controversial legislation was released surrounding Brexit. The new bill drawn up aims to rewrite parts of the divorce bill. One major element of this is the treatment of Northern Ireland. This has been a sticking point of the negotiations so far.
Today, as the bill was announced, the EU has called for an emergency meeting to discuss the concerns they have on the potential rewriting of the agreement. The legality of the rewriting has been called into question.
How’s this impacted the FTSE 100 and FTSE 250?
The FTSE 250 typically has greater sensitivity to Brexit news, as more of the constituents are domestic firms that will be impacted by the outcome. FTSE 100 firms will be impacted, but a large proportion are global entities, generating revenues all around the world.
Both indexes fell on Tuesday morning as the news broke about the legislation. For example, the FTSE 100 was down around 0.8{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b} by lunchtime. Both indexes managed to rally back in the afternoon.
The reaction today has been more muted. The FTSE 250 traded lower again this morning as the negative news headlines came through, but finished the day only down 0.17{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b}. The FTSE 100 finished higher, although this can be put down to broader risk sentiment being positive around the world.
Investing with Brexit on the horizon
Brexit is now a very real event on the horizon. As we get closer to the deadlines, I expect both the FTSE 100 and FTSE 250 to be very sensitive to the headlines. In terms of investing, I think there will be some form of agreement done. As a result, I’m looking to get exposure to domestic firms in either index. Barratt Developments is one firm I’ve got my eye on. Not only is it a Brexit play due to the UK-based nature of the firm, but it’s also a play on a rebound in the property sector. I wrote more about Barratt here.
Secondly, we saw UK banks react strongly to Brexit news over the past few years. I’d be looking to add to my current position in Lloyds Banking Group if we see a short-term fall. Even though the business outlook in the near term isn’t positive for Lloyds specifically, Brexit could give it a short-term boost, aiding a longer-term share price rally.
I’d advise keeping on top of the latest Brexit news, as it’s a key driver for the UK stock markets!
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jonathansmith1 has shares in Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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