Weekly equities forecast: What a UK election could mean for stocks?

With the UK election fast approaching investors are weighing up what impact voting on July 4th may have on the UK stock market. Since the announcements, the FTSE 100 trades almost unchanged and remains close to its record high, which it reached in May. GBP has remained firm against the euro, suggesting that the markets are relatively relaxed about the prospect of the election. However, GBP/USD has fallen, although this is more likely a reflection of BoE- Fed divergence.

One likely reason that stocks remain supported is that the result is almost a given – a Labour win, as the party is considerably ahead in the polls and has maintained that lead across the election campaign. Regardless of the outcome, the ruling Conservative and the incoming Labour government aren’t expected to have radically different fiscal or economic impacts, which means less market reaction. Sentiment could remain more focused on interest rate expectations and when the BoE plans to kick off its rate-cutting cycle.

That said, there are a few areas where a difference in policy between the Conservatives and Labour could impact specific sectors rather than the broader economy.

Railway Nationalisation

Last month, Labour announced that it would nationalize the train network within five years of coming into power. This clearly puts rail stocks, such as Trainline, the UK’s largest rail operator, and First Group, under the spotlight. However, these stocks fell sharply a month ago when the policy was announced and before the General Election was announced, suggesting that the move has been priced in.

Trainline forecast

After reaching a 2024 high of almost 400p, the share price has corrected lower, and trades caught between its 100 and 200 SMA. It also holds above its multi-month rising trendline at 300p. A break below here could see sellers gain momentum.

Water companies

While on the topic of nationalization, it is worth pointing out that Labour has stepped back from pledges to nationalize water. Instead, it plans for strict regulation and legislation to ensure that companies tackle sewage and pay for infrastructure upgrades. The threat of a tougher stance against water companies such as Severn Trent and Pennon Group sent the share price tumbling. Should we hear more from Labour surrounding policies towards water firms, these stocks could fall further.

Severn Trent forecast

Severn Trent corrected lower from 2600p, dropping aggressively below the 200 SMA to a low of 2300p. The price is attempting to recover towards the 200 SMA at 2435p. Above here, buyers could gain momentum towards 2600p. On the downside, sellers will look to take out support at 2300p and 2250p the 2024 low.

Energy stocks & windfall taxes

Labor leader Kier Starmer has pledged to create “Great British Energy,” a publicly clean power company, which will be funded by big oil and gas companies paying their fair share through a proper windfall tax. A windfall tax was launched by the Conservatives in May 2022, imposing an additional 25% tax on profits earned by companies from the production of oil and gas in the UK. This was raised to 35% from the start of 2023. Effectively, this means the total tax burden on North Sea oil and gas producers is 75%. Labour pledged to raise this to 78%.

Shell and Exxon Mobil are close to selling their jointly controlled Nort Sea gas fields, and other large players, such as BP, are not expected to be impacted. Harbour Energy is the largest independent operator in the region, although it has already slashed investment in the area. Harbour Energy shares trade around 330p, significantly down from their 2021 high of over 500p a share.

Harbour Energy forecast

Harbour Energy trades within a rising channel and at its highest level since November 2022, suggesting that investors are shrugging off the prospect of higher windfall taxes surrounding its North Sea operations. Buyers could look to extend gains towards 350p as the next logical level. Support can be seen at 300p.

Housebuilders

The shortage of housing and challenges faced by people wanting to get onto the property ladder. Labour’s housebuilding target is to see 1.5 million homes built within the first five years while giving a big boost to affordable housing. The focus on housing and housebuilding boosted housebuilders on the day that the election was announced. We could see the share price of the likes of Taylor Wimpey, Barratt Developments, and Permission continue to rise, especially if Labour decided to revive support in the form of Help To Buy or a similar program.

Taylor Wimpey forecast

Taylor Wimpey has corrected lower from 150p its 2024 high. The price continues to trade above the rising trendline. Buyers will look to take out 150p to extend towards 200p and level last seen in early April 2021. Immediate support can be seen around 144p. Below here, the 100 SMA comes into focus at 138p ahead of the rising trendline at 135p.