Will bullish run for UK stocks extend to third month?

It’s been a great start to 2023 for UK investors, but is there enough momentum to keep share prices nudging higher? Here’s how February went and what could happen in March.

What a mixed month for global stock markets. After an incredible January for pretty much every major index, there was a clear geographical divide in February.

There was more cheer for patient UK investors as the premier FTSE 100 index made a record high and, in the meantime, broke above the magic 8,000 level for the first time.

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It was a great month for Rolls-Royce Holdings (LSE:RR.) as bullish comments from its new chief executive put a rocket underneath the shares. Tufan Erginbilgic used his first set of results at the engineer to reveal a transformation plan is already moving at pace. Ahead of further details on his plans, due later this year, Erginbilgic said Rolls is capable of “materially higher profit, cash flows and returns”. 

Rolls-Royce shares, which had traded as low as 64.4p in October last year, shot up more than 20% in one day and now trade above 145p. They’re up 37% in February as at lunchtime on the 28th. Subsequent director share buying and broker forecast upgrades imply more to come.

Elsewhere, BP (LSE:BP.) and Shell (LSE:SHEL) have had another good month, up 14% and 7% respectively, following gains of 3% and 2% in January. And there’s been renewed interest in telecom sector laggards BT Group (LSE:BT.A) and Vodafone Group (LSE:VOD), up 13% and 8% in February. Other stocks in tough sectors did well too, among them housebuilder Taylor Wimpey (LSE:TW.), up almost 5%, and British American Tobacco (LSE:BATS), up 3.8%.

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Optimism here offset the sour mood in the mining sector where concerns about profits and dividends had major players Rio Tinto (LSE:RIO), Anglo American (LSE:AAL), Antofagasta (LSE:ANTO) and Glencore (LSE:GLEN) down between 9% and 18% in February. While the Chinese economy has reopened, miners have been hit by a falling iron ore price and subsequent impact on company profits. Dividends have been cut as a result.

Despite this, the FTSE 100 index was posting a monthly gain of 2.1% as at lunchtime on 28 February, adding to its 4.3% jump in January. The FTSE All-Share index is up 1.8%.

The French CAC 40 kept the UK market from top spot, rising 3% this month after an impressive 9.4% profit in January. The German DAX is up 1.7% and the Japanese Nikkei 0.3%.

However, the Hang Seng lost 8.7% for the month, and the US indices all posted losses. With just one session of February to go, the Dow Jones was down 3.5%, the S&P 500 2.3% and the Nasdaq Composite 1%. Wall Street investors have been panicked by a hotter-than-expected read on inflation and the possible need for more aggressive hikes in US interest rates. 

Will March make it three in a row for 2023?

After two winning months so far this year, investors will be hoping that March can make it three out of three.

Historically, the odds of successfully predicting stock market behaviour in March are no better than flipping a coin. But after a poor patch between 2011 and 2015, the FTSE All-Share’s form has improved.

The index made gains in March 2016 and 2017, since when it has only fallen in March 2018 and 2020, making it five wins out of seven.

There are, of course, plenty of opportunities for things to go wrong in the month ahead – not least any escalation of the conflict in Ukraine. There are also concerns about a declining trend in corporate earnings and a possible global recession, although the threat of the latter appears to have decreased in recent weeks.

But before cracking open the champagne, watch out. According to The Harriman Stock Market Almanac, the last week of March has historically been one of the weakest weeks for the market in the whole year.