Image source: Getty Images
At the beginning of April, the FTSE 250 plummeted nearly 10% in a few days. The reason for the sudden drop was President Trump’s infamous ‘Liberation Day’ speech.
Since 7 April though, when mid-cap stocks bottomed out, the FTSE 250 has surged 18%.
The first week of April also coincided with the new Stocks and Shares ISA year. So, had someone invested the £20,000 allowance in a FTSE 250 index fund on 7 April, they’d now have roughly £23,600. That’s a brilliant return in just six weeks.
Indeed, even if it stayed flat for the rest of the year, that would be a great return, especially when the index’s 3.4% dividend yield is added to the mix.
Why is the FTSE 250 up?
The main reason for this rebound is that most tariffs have since been lowered or paused by President Trump while trade negotiations continue.
Also, the Bank of England reduced its base rate to 4.25% earlier in May. Lower interest rates reduce borrowing costs for businesses and consumers, encouraging investment and spending (in theory).
Companies in the FTSE 250 are more domestically focused, meaning they’re generally sensitive to such rate changes. With further cuts anticipated before 2026, and many mid-caps still trading cheaply, investors might be snapping up bargains.
Another reason could be that the UK economy grew slightly faster than expected in the first quarter (0.7% rather than 0.6%). That said, this level of economic growth isn’t expected to last, with US tariffs coming in after that.
Finally, the pound has strengthened, which might benefit some domestic firms. It recently reached a three-year high against the US dollar.
Top performer
The best-performing FTSE 250 stock since early April has been Burberry (LSE: BRBY). Shares of the luxury fashion brand are up 59%, although they’re still 60% below where they were just over two years ago.
In its last financial year, Burberry reported that it had swung to a £75m post-tax loss, from a £270m profit the year before. Revenue slumped 17% to £2.46bn.
This dreadful performance was due to the massive slowdown in the global luxury market, with sales falling across all regions. In China and South Korea, sales declined 15% and 18%, respectively.
Further weakness in consumer spending remains a key risk here, while the dividend remains suspended.
The company said: “We are still in the early stages of our turnaround. The current macroeconomic environment has become more uncertain in light of geopolitical developments…We are confident that we are positioning the business for a return to sustainable, profitable growth.”
That last bit about returning to profitability helped spark much of the turnaround in the share price. Burberry is cutting around a fifth of its global workforce — some 1,700 jobs — to help save £60m by 2027, on top of £40m already announced.
According to forecasts, the stock is trading at 24 times expected earnings for the next financial year (starting March 2026). Much like Burberry baseball caps — which cost between £290 and £450 apiece — that doesn’t immediately scream ’bargain’ to me.
Then again, surely the firm will start making a healthy profit again charging such prices. Won’t it? For investors who believe in the brand, today could be a good time to consider this turnaround stock. I’m going to pass though due to the uncertainty.
This story originally appeared on Motley Fool
