FTSE 100 falls as budget realities sink in, US tech hits sentiment

On Thursday, London's main stock index was notably down as concerns about the budget weighed on investor sentiment. Additionally, a decline in US tech stocks added to a cautious atmosphere in the trading market.

At the time of writing, the FTSE 100 had dropped by 0.7%, bringing it down to 8,099.

While yesterday's budget turned out to be better than many initially worried it would be, it still had an overall negative impact on businesses in the UK.

Higher National Insurance will lead to increased expenses for businesses and reduce their profits, while the rise in capital gains tax may dampen investor interest. Although the decision to keep corporation tax unchanged offers a slight advantage for UK companies, it pales in comparison to the £40 billion in tax increases unveiled by Rachel Reeves yesterday.

Predictions of higher government spending and borrowing have led to a rise in gilt yields, which suggests that interest rate cuts might not happen anytime soon. It's widely recognized that this situation isn't favorable for the stock market.

"The relief rally following the Budget yesterday was short-lived," stated Russ Mould, the investment director at AJ Bell.

Gilt yields surged after the market realized that government borrowing is set to rise significantly over the next five fiscal years, and the additional tax revenue from the Budget changes won't materialize right away.

This indicates that interest rates may remain elevated for an extended period, which isn't favorable for homebuilders and retailers who are looking for some relief on household budgets. This is the reason those sectors saw declines today. Additionally, it clarifies why banks were among the few gainers on the FTSE 100; they are likely to profit from a higher interest rate landscape since they can set higher fees for loans.

As noted by Russ Mould, the recent surge in housebuilder stocks quickly reversed, with shares of Persimmon, Barratt, Redrow, and Taylor Wimpey all dropping by 3% or more.

The government’s commitment of £5 billion to construct new homes won’t have much impact if potential buyers can’t afford to purchase them and landlords are selling off their properties since renting them out is no longer profitable.

Smith & Nephew was the biggest decliner in the FTSE 100 after it lowered its expectations for revenue growth due to struggles in China. At the time of reporting, its shares had fallen by 12%.

Smith & Nephew, the UK's leading manufacturer of medical devices, has revised its annual revenue growth expectations downward due to disappointing performance in China. A decline in demand within their surgical division has led to the adjustment of their forecast from an anticipated growth of 5-6% to just 4.5%. This notable decrease has impacted their stock prices negatively this morning, according to Adam Vettese, a market analyst at eToro.

The possibility of increased interest rates contributed to small gains for Lloyds and NatWest, while Shell saw a 1% rise following the announcement of a new $3.5 billion stock repurchase program.

As of Thursday, more than 90% of the companies listed in the FTSE 100 were experiencing declines.