The stocks behind the FTSE 100 January gains

The index underperformed in 2020, but started the new year with impressive rises.

Investors with BP (LSE:BP.), Royal Dutch Shell (LSE:RDSB) or Rio Tinto (LSE:RIO) in their portfolios were today sitting on double-digit percentage gains after a spectacular start to 2021 for the FTSE 100 index.

Rising commodity prices fuelled by vaccine roll-outs and the stimulus boost of Democrats taking control of the US Congress and the White House lifted several heavyweight stocks.

The FTSE 100 underperformed during the pandemic due to its dependence on financial, mining and cyclical stocks. But it saw a welcome reversal of fortunes in recent days to become the best-performing global stock market so far in 2021.

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A rise of 3.5%, or 229 points, yesterday meant top flight firms started today’s session more than 6% higher for the year. There’s been some profit-taking since then, but the list of the biggest risers in the year to date still makes impressive reading.

Commodities trader Glencore is up 17.5%, while Rio Tinto and BHP (LSE:BHP) are both at fresh multi-year highs after surging 14% in the first three days of the year. Their progress comes with copper trading at nearly a seven-year high and Goldman Sachs calling the recent surge in prices the start of a much longer structural bull market for commodities.

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BP and Royal Dutch Shell have risen 14% after Brent crude reached 54% US dollars a barrel, helped by the decision of Saudi Arabia to cut oil production in February and March.

Keith Wade, Schroders’ chief economist, said the chances of a V-shaped global recovery have increased after Democrats won both Senate run-off elections for control of Congress.

He said: “Our previous baseline expectation was for a split Congress, so the Democrat sweep means we will be increasing our economic growth forecasts for this year and next. 

“There is still a difficult winter to get through, with Covid-19 cases soaring, and we would have to see the details of the fiscal stimulus. But normal multipliers would suggest adding one percentage point to US GDP this year and next.”

Such growth would reduce unemployment and close the output gap faster, placing greater inflationary pressure on Wade’s forecast for a 2024 rise in the Fed’s target interest rate.

He added: “Although the events of Wednesday night mean that risks remain over a smooth transition of power, the likelihood of a sharp V-shaped global recovery have increased.”

A weaker dollar and the prospect that policymakers will allow inflation to overshoot targets to support economic recovery have also propped up gold and silver prices.

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With gold still in sight of the $2,000 (£1,470) level, shares in Russia’sPolymetal International (LSE:POLY) are so far up 8% with Mexico-focused silver producer Fresnillo (LSE:FRES) sitting on a rise of more than 10%.

The threat of rising prices, meanwhile, has increased the appeal of Bitcoin as a hedge against inflation, with the cryptocurrency trading at fresh record highs of around $37,500.

Despite the focus on the so-called reflation trade, the biggest overall riser in the FTSE 100 index in 2021 has been Ladbrokes (LSE:LAD2) and Sportingbet owner Entain (LSE:ENT). Its shares surged almost 30% following takeover interest from US casino giant MGM Resorts (NYSE:MGM).

The prospect that more US states, including New York, will legalise online sports betting is further driving investor interest, with 888 Holdings (LSE:888) 11% higher so far this year.

Rising US bond yields in the wake of the Senate votes have boosted sentiment towards banks, as HSBC (LSE:HSBA) and Standard Chartered (LSE:STAN) are up by more than 8%. Aviva (LSE:AV.), which analysts at Deutsche Bank think is the most undervalued of the major UK insurers, has improved 7% to 349.4p.

There’s also been some much-needed new year cheer for beleaguered BT (LSE:BT.A) investors after the telecoms group added 8%. The stock, which rose 2% to 144.15p today, is now trading at its highest level since the end of February having recovered from below 100p in November.