Interactive Investor

Will UK stocks spring to life in March?

Much like the unpredictable British weather, UK stocks are unable to demonstrate any consistency, dishing out pleasure and disappointment in equal measure. We look at events in February and what might happen this month.

6th March 2024 09:36

Lee Wild from interactive investor

There was a familiar feel to global stock market performance in February. Wall Street surged ahead again, Europe chased, while UK stocks won the wooden spoon. The only remarkable thing was that China had its day in the sun, leading global markets last month with a 9% gain.

In a month dominated by corporate results reporting, FTSE 100 stocks had given a glimmer of hope. Rolls-Royce Holdings (LSE:RR.) added another 22.5% to reach a 10-year high following its numbers, as the transformation under newish boss Tufan Erginbilgiç continues. Insurer Beazley (LSE:BEZ) surged 20% after promising a big increase in shareholder returns.

InterContinental Hotels Group (LSE:IHG) is doing well, too, up almost 12% last month, while four of the UK’s five main listed banks – Standard Chartered (LSE:STAN), Barclays (LSE:BARC), Lloyds Banking Group (LSE:LLOY) and NatWest Group (LSE:NWG) – all delivered enough in their latest figures to attract investors and push prices to levels rarely seen in recent years. Bank stocks were up between 6% and 11% in February.

Ending the month with a small loss of 0.2%, the FTSE All-Share index has now fallen 10 times in the past 34 years. A decline for the FTSE 100 was even smaller.

But why is the UK market lagging overseas rivals, given it was only a year ago that the FTSE 100 hit a record high above 8,000.  

Last month, a shock £426 million provision at St James's Place (LSE:STJ), linked to possible client refunds, caused a swing into the red and 23% share price slump. That did the blue-chip index no favours. Neither did a downturn among the major mining stocks as weaker profits meant lower dividends.

Reckitt Benckiser Group (LSE:RKT) published disappointing fourth-quarter sales, which dumped its shares to levels last seen in 2014. HSBC, which has a big influence on the FTSE 100 index, ended in the red last month after a poor fourth-quarter held back annual profit.

And another month of UK underperformance came despite a rush of takeover activity as bidders circled some well-known names that can currently be bought cheaply. Currys (LSE:CURY) (US private equity firm Elliott/ China's, Superdry (LSE:SDRY) (co-founder and chief executive Julian Dunkerton), Wincanton (LSE:WIN) (America’s GXO Logistics) and DS Smith (LSE:SMDS) (FTSE 100 rival Mondi (LSE:MNDI)) have all attracted offers in the past month.

Is it UK’s turn to shine in March 2024?

Since October 2021, the FTSE 100 index has spent most of its time, barring some dips and spikes, between 7,000 and 7,750. Yes, generous dividends have made up for some of that bland performance, but investors are growing impatient.

A drop in interest rates could herald better times ahead, but that will rely on data showing a steady decline in inflation plus sensible economic growth. The Bank of England announces its latest rate decision on 21 March, but we won’t be getting a cut yet. Best we can hope for is an indication of where each policymaker sits on the matter.

Historically, stock market performance in March is no more predictable than the flip of a coin.

The FTSE All-Share fell 3.4% in March 2023 as the banking crisis triggered a global equity market sell-off. The collapse of Silicon Valley Bank rippled across Europe where Swiss authorities were forced to arrange the rescue of Credit Suisse by UBS.

There are no such fears this year, but the All-Share has now fallen in March in three of the last eight years. Not a bad record, but no reliable indicator of success.

It will be interesting to see whether America’s Magnificent Seven tech stocks can justify high valuations and continue driving outperformance of US markets. Or whether investors decide to look for value elsewhere. Uncertainty ahead of a general election this year might not work in the UK’s favour.

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