The FTSE 100 closed on Wednesday at 6,360.1, after a surprise 3.58% increase wiped out the losses made at the end of last week as the UK voted to leave the EU in the referendum on Thursday.
Immediately after the vote to leave, the FTSE 100 index fell by 8%, before recovering somewhat to end the day at 6,138.69, a net drop of 3.2% for the day.
The pound also fell to a 31 year low against the dollar, hitting $1.3236 at its lowest point following a drop of almost 11%.
The FTSE 250 index, which contains more UK-focused companies and is generally seen as a more accurate measure of the stock market’s health, was hit even harder by the vote, closing on Friday at 16,088.05 following a 7.2% drop.
The biggest hit sectors were housing and banking, with shares in Lloyd’s bank down 21% at the end of the day.
Laith Khalaf at Hargreave’s Lansdown said: “Financials and housebuilders are bearing the brunt of the pain, with Lloyds Bank being one of the biggest fallers.
“It’s probably safe to say the public sale of the bank is now firmly in the long grass, and the return to full private ownership of both Lloyds and RBS has been knocked off course.”
However, as of Wednesday this week, the FTSE 100 had jumped back up to recover all lost ground and then some, and the pound strengthened somewhat against the dollar.
Reactions were mixed, with some describing the recovery as unexpected, and others saying that the initial plummeting was only ever going to be temporary.
Chris Beauchamp, senior analyst at IG, said of the state of play on Wednesday: “The plethora of bargains on offer, plus a welcome period of calm in the UK/EU relationship provided the opportunity for markets to recover in impressive fashion.”
Nonetheless, analysts are warning against complacency in the wake of this latest jump.
Financial Spreads founder Adam Jepsen said: “Any investors who think the markets have calmed down should think again. It is far more likely that we are in the eye of the storm.”
In part, the recovery comes from a combination of the fact that the initial drop was a gut reaction to the unexpected vote, and the fact that, since the actual exit procedures have not yet begun, the markets are, for the time being, structurally the same as they were before June 23rd.
Michael Hewson at CMC Markets said: “Whilst this [delay in Britain’s actual exit] doesn’t remove the uncertainty with respect to the eventual outcome, it also means that markets are going to have plenty of time to settle into their new-found reality and equilibrium.”
ETX Capital’s head of trading, Joe Rundle, put the recovery down to a general belief that Britain will still remain in the single market following negotiations, but warned that this outcome is by no means certain.
“What we’re seeing in the FTSE,” he said, “is hope in Britain being able to ride it out by remaining part of the single market. This looks like wishful thinking.”
While the FTSE 100 recovered all the ground it had lost in the wake of the vote, the FTSE 250 still has some way to go.
The FTSE 250 was up 3.2% over the day, but is still over 7% below where it was before the vote, having continued to drop for days following June 24th.
The pound strengthened somewhat against the dollar as well, ending the day at $1.348.