How Optimism has Propelled the FTSE 250 to Brand New Heights

A quick glance at the UK economy may cause a strange sense of pessimism at present, particularly as it remains a staggering 8.7% smaller than it was prior to the coronavirus pandemic.

However, while the economy also shrank by 1.5% through Q1 2021, it gathered considerable momentum in March as lockdown restrictions began to ease nationwide. In fact, strong retail performance and the reopening of schools saw the economy grow by 2.1% in March, with this representing its fastest monthly growth rate since the previous August.

This has definitely created increased optimism in the financial markets, with the FTSE 250 soaring as the economy reopens. But is this optimism well founded, and can it be sustained through the remainder of 2021?

How has Optimism Boomed in the UK?

Business sentiment is certainly picking up as the UK economy reopens, while this trend is also being driven by the relative success of the nation’s Covid-19 vaccination program.

To date, more than 35 million people have been given their first coronavirus vaccine dose on these shores, while more than 51 millions jabs have been administered in total nationwide.

Optimism is also increasing amongst investors, with the level of demand for FTSE 100 shares leaping to fresh multi-month highs recently. At the same time, the FTSE 250 has just soared to its highest level in history, with this index packed full of promising mid-cap stocks that often strike the ideal balance between accessibility and future growth potential.

The nature of the FTSE 250 may explain why this index has grown at a more pronounced rate than the FTSE 100, as the stocks featured here are typically a little more affordable and especially appealing while at least some economic uncertainty remains.

Not only this, but the impact of the coronavirus also means that some of these FTSE 250 shares are considerably cheaper than they were prior to the pandemic and subsequent stock market crash, enabling eagle-eyed investors to capitalise and capture some bargains.

Can This Trend be Sustained Indefinitely?

While the UK economy and its markets are definitely embarked on an upward trajectory, we’ve already touched on the fact that some doubt remains about the sustainability of the recent financial boom.

To begin with, some sectors are set to rebound at a far slower rate than others, particularly hospitality, travel and aviation companies. This can provide a counterweight to positive market sentiment, while also impacting on the pound and the demand for forex broker services nationwide.

Not only this, but the threat of vaccine-resistant coronavirus variants continues to cast a slight cloud over the UK’s economic recovery, with the government continuing to warn of the dangers posed by international travel and the threat of a new wave of infections.

Make no mistake; another wave of infections on these shores could be particularly damaging to the FTSE 250, with this index featuring a larger quota of UK-focused stocks when compared to the FTSE 100.

So, while optimism is likely to be sustained through Q2 and the beginning of quarter three, it has yet to be seen whether this persists indefinitely and over time.