If you were expecting a monster relief rally on the FTSE 100 this morning, you will have been disappointed.
At time of writing, the FTSE 100 is up just 0.60% at 6871, seven points off its 52-week high of 6878. Markets were clearly factoring in a win for the No campaign.
There are some winners, notably and unsurprisingly Royal Bank of Scotland, up 3.4% at time of writing. Lloyds Banking Group is up 2%. SSE has risen a similar amount. Standard Life is up just 1%.
Clearly, things would have been a lot more dramatic if Scotland had voted Yes.
There’s More to Life Than Scotland
The market has moved on, and is now worrying about the mining sector instead. The slowing Chinese economy, disappointing stimulus measures, and rising value of the dollar have knocked Rio Tinto and BHP Billiton, and most other miners.
Yet I wouldn’t write off the longer-term positive impact of the No vote. That is likely to be felt over the next few weeks and months, and should give the index a sustained lift.
Come Home
First, overseas investors are estimated to have pulled £16.6 billion out of the UK, in the run-up to yesterday’s referendum. That money won’t rush back into the FTSE 100 in an hour or two.
But those missing billions should return, as passions calm in Scotland, and the rest of the UK also looks to move on. And that will be a nice kicker for the FTSE 100.
Tick CapeX For Growth
Also, UK companies that have delayed capital expenditure until after the referendum are likely to take the plunge.
Yes, the poll was fairly close, at 55% to 45%, and there is early talk that the Nationalists will push for another referendum.
But once the fuss has died down, I don’t think Scotland will be in a hurry to repeat recent events. The Nats will need time to lick their wounds.
If sovereignty risk is off the table for a generation, that will encourage companies to make long-term capital intensive investment decisions in areas such as North Sea oil exploration and production.
UK corporates are sitting on a mountain of cash. It would be good to see them spending more of it.
Natty Dread
There will be continuing political headwinds in the UK, as politicians battle with constitutional change, the May 2015 election, and the prospect of a referendum on EU membership in 2017.
Again, however, the Scottish vote will calm matters. A Tory victory and EU exit is now less likely.
Also, the failure of the noisy Nats may suggest that the English would be less likely to vote No to the EU than you would might think if you listened to the similarly noisy UKIP.
That will help the FTSE 100 as well.
Pound Rebounds
The No vote does make an interest rise more likely now. Consensus says the first hike could come in the Spring, but I wouldn’t be surprised to see it postponed further.
Even if I’m wrong, subsequent rate hikes are likely to remain as rare as hen’s teeth, as the economy remains fragile, posing little threat to stock market growth.
The pound has rebounded in recent days, and this will hurt the FTSE 100, because its constituent companies generate 77% of their profits overseas.
These earnings now be worth less once converted into pounds.
As ever, it won’t all be plain sailing. The eurozone, Ukraine, Middle East and China will certainly see to that.
Flying High
If you’re optimistic, it isn’t too late to hop on board. At just 13.71 times earnings for the index, the FTSE 100 certainly isn’t overpriced.
Plus you can also pocket a juicy yield of 3.41%.
The FTSE 100 is just 50 points off its all-time high of 6930. It will be nice to have put a bit of extra money in the market when it finally gets there.