Market snapshot: US rally and FTSE 100 reshuffle latest

Wall Street did well overnight, but price moves here could have a big effect at the next FTSE 100 review.

The slowing of inflation concerns may be temporary, but it has nonetheless allowed markets to regain some of the lustre they had recently lost.

A weaker than expected US business activity reading and a rise in jobless numbers in early May brought into question the previous assumptions that the US economy was running too hot. Although these data points alone are not sufficient to alleviate inflationary concerns, they provided a respite to growth stocks in particular, with the Nasdaq posting a strong gain to stand ahead by 5% in the year to date. The Dow Jones and S&P 500 also had something of a relief rally after suffering losses earlier in the week, and in 2021 are now up by 11.4% and 10.7% respectively.

• Bill Ackman: I think this could be the Black Swan event of 2021
• Want to buy and sell international shares? It’s easy to do. Here’s how
• Check out our award-winning stocks and shares ISA

Meanwhile, the FTSE 100 continues to attract interest when investors move in to “risk on” mode, with its seemingly undemanding valuation marking it out as an investment destination. There has also been evidence that some of the purported pent-up demand in the UK economy is now being released, with a strong retail sales reading reflecting the partial easing of lockdowns in April.

The index has risen by 8.7% in the year to date and is currently well poised to benefit from the likelihood of an accelerating global recovery, despite the more recent strength of sterling which usually works against the index given the international focus of its constituents.

FTSE 100 reshuffle runners and riders

Those constituents are soon due for review, with engineering firm Renishaw (LSE:RSW) likely to have had no more than a fleeting visit to the FTSE 100 after promotion to the premier index in March. The company’s octogenarian founders have put their stakes up for sale, but a reportedly difficult set of parameters and the level of the share price seem so far to have deterred potential buyers. The shares have fallen by 15% over the last month as a result, and relegation from the FTSE 100 seems guaranteed in the imminent June reshuffle.

Its replacement is currently a two-horse race between the outsider, ITV (LSE:ITV) and the favourite, Royal Mail (LSE:RMG). At current levels, the ITV share price would need a boost of around 5% for its market value to surpass that of Royal Mail.

• Royal Mail thrives during pandemic parcels boom
• Jeff Prestridge: an improving outlook for UK investors?

Both shares have had a very strong run on recovery prospects. For ITV, where the clouds are beginning to clear as advertising revenues build and the Studios business edges towards full production, the shares have seen a 73% hike over the last year.

Meanwhile, pressures arising from the pandemic have given Royal Mail the jolt it needed and with startling effect. The spike in volumes during the pandemic accelerated the trend away from letters and towards parcels at a pace which forced the transformation of the company at lightning speed. The shares have risen by 213% over the last year as a result, and the company is most likely to replace Renishaw at the top table.