The FTSE 100 achieved its strongest run in over two years this week, posting its seventh consecutive day of gains on Tuesday. This momentum recovered losses from earlier in the month, bringing the index up 1% year-to-date (YTD). 

The move suggests renewed investor confidence after a long period of cautious sentiment.

What’s driving the rally?

A key factor behind the FTSE’s recovery has been the easing of global trade tensions. Markets were rattled earlier this month by the announcement of US trade tariffs on the UK — but recent statements from Washington suggest a softer stance. Nothing is set in stone, of course. But as fears subside for now, investor appetite for risk has increased, benefitting large-cap UK stocks with international exposure.

Additionally, the Footsie’s heavy weighting in commodities, banking and defensive sectors has made it an appealing option amid persistent global economic uncertainty. A weaker pound has also helped UK multinationals by making their overseas earnings more valuable when converted back into sterling.

Sectors that are leading the charge include consumer staples, utilities and housing. The top two, which investors may want to consider, include Severn Trent (LSE: SVT) and J Sainsbury (LSE: SBRY).

Severn Trent

One of the standout performers over the past week is Severn Trent, which has climbed 9.25%. The utility firm, which supplies water and waste services across the Midlands and Wales, offers an attractive 4.3% dividend yield. This can provide a defensive cushion during uncertain economic periods.

Unfortunately, the price surge pushed up its price-to-earnings (P/E) ratio to 23, so the price may be slightly overvalued now. Plus, it carries notable debt levels – over £6.8bn – raising concerns in a higher interest rate environment. Regulatory scrutiny and environmental challenges are also ongoing risks for water utilities.

On the plus side, its regulated model provides stable cash flows and supports reliable dividend payouts. Its most recent earnings report showed underlying profit before tax rising to £25m, underpinned by consistent customer demand.

J Sainsbury

Supermarket giant J Sainsbury has seen its share price jump 8% in the last seven days, buoyed by solid sales growth and improved margins.

In its recent full-year results, the retailer reported a 7.6% increase in underlying profit to £70m, and maintained its dividend payout, yielding around 5%. It has also gained market share as shoppers respond positively to price cuts and loyalty incentives through its Nectar programme.

Yet it operates in a fiercely competitive grocery sector, facing pressure from Aldi and Lidl at one end and Tesco at the other. Profit margins remain tight, and cost pressures such as wage increases, pension liabilities and supply chain challenges could squeeze earnings. 

On the plus side, it has a low P/E ratio of 10.8, suggesting the price has sufficient room to grow.

Looking ahead

With momentum on its side, the FTSE 100 could now push towards new record highs. That is, if inflation continues to ease and the Bank of England’s (BoE) highly anticipated interest rate cuts materialise. 

However, much will depend on economic data and central bank policy decisions on both sides of the Atlantic. While technical indicators remain bullish in the short term, investors should remain cautious of potential volatility.