British voters are poised to deliver a landslide victory to the Labour Party in an election comparable to the landslide victory of former Prime Minister Tony Blair in 1997. If history is any indication, that could be a boon for stocks and bonds, based on how markets have performed after past elections.
The month after Blair took office, the FTSE 100 index rose 4%, and over the next 12 months it rose 35%. Interest rates also fell, with the yield on 10-year UK government bonds falling 1.6% during that period. And just like then, this week’s vote is expected to bring about fundamental change. The Conservatives have been in power for 14 years. When Blair came to power, the Conservatives had been in power for 18 years. Blair would go on to be prime minister for 10 years.
But it’s not change but the apparent certainty of this poll that is appealing to markets, because Labour is expected to win decisively.Unlike in the U.S., where markets have historically preferred gridlock in Washington, British investors have preferred a clear direction for the past three decades.
Five years ago, in the last election, Prime Minister Boris Johnson’s Conservative Party won a landslide majority. Stocks rose 4% in the following month, and bond yields fell, according to Dow Jones market data. Both fell a year later, likely due to the onset of the coronavirus pandemic.
The 2015 election also saw the Conservatives win. Stock prices fell 1.2% a month later and 11% a year later. In 2010, the Conservatives won the most seats in Parliament but failed to secure a majority, and were forced to form a coalition government with other parties. The FTSE 100 fell 2.6% in the month after the election.
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Similarly, Blair’s Labour Party won two elections since 1997, yet its majority shrank each time. Stocks fell in the week following the votes in 2001 and 2005. In 2001 they continued to fall for 12 months, but rose 24% the year after the 2005 election.
Indeed, the only surprise in this year’s election would be if Labour doesn’t win a landslide majority. Stocks are likely already pricing in a victory for party leader Keir Starmer, who is set to become prime minister. The FTSE 100 was up 0.9% in Thursday trading.
Contact Brian Swint at brian.swint@barrons.com.
