March 2017 update
Stock market reaches record high as share prices continue to advance
UK share prices gained ground in March, taking the market to a new record high. There had been worries that the signing of Article 50, which officially gives notice of the UK’s intention to leave the European Union, would result in stock market volatility. But in the end, these concerns proved unfounded and share prices continued to advance.
Economic data showed UK inflation at its highest level since September 2013. Consumer price index inflation jumped to 2.3% in February, lifting the rate above the Bank of England’s 2% target. The Bank of England has said it expects inflation will peak at 2.8% next year, although some economists think the rate could rise above 3%.
But while inflation has been rising, wage growth has been slowing, leaving households worse off. The resultant slowdown in consumer spending is deterring the Bank from raising interest rates too soon in case it hurts the economy – a response that was welcomed by investors.
The US equity market made a small gain over the month, having dropped and then rallied again in final days. All eyes were on the Federal Reserve, which announced its widely anticipated third interest rate hike in two years. Janet Yellen, Chair of the Federal Reserve said that progress over the last few months had been made “in exactly the way we anticipated”.
European investor sentiment was buoyed by the election results in the Netherlands, which was hailed as a rejection of ‘populism’ in the Eurozone. Economic data was positive. Eurozone private sector activity reached a six-year high in March, led by manufacturing growth in Germany and services sector improvements in France.
Japan was the only major developed equity market to record a loss in local currency terms in March. Elsewhere in Asia, the People’s Bank of China increased interest rates in an attempt to reduce financial risks, a move that was broadly anticipated by investors so it did not affect markets too much.
Bond investors took the rise in US interest rates in their stride. Government bond yields ended the month largely unchanged in both the UK and US. European markets fared less well, with the yield on 10-year German Bunds closing higher at 0.33%. By contrast, European corporate bonds performed comparatively well, benefiting from the upturn in investor confidence.
The UK commercial property market remained fairly subdued, but produced positive returns. A degree of nervousness continued to affect the market ahead of the start of formal Brexit negotiations.
Should I make any changes to my investments?
Everyone’s circumstances are different and we aren’t able to give you advice on what is appropriate for you. As always, if you are considering your own position, you should remember why you invested in the first place and consider the lifespan of your investments. Most importantly, you should seek financial advice before making any changes to your investments.
One way in which you can help reduce the impact of any market volatility is to spread your investments across different asset classes and regions. For more information about investing across different asset classes take a look at our An introduction to diversification in multi-asset funds guide.
Remember that before making any changes to your investments, you should seek financial advice. If you don’t have a financial adviser, you can find one local to you by visiting find a financial adviser, which is responsible for promoting financial advice in the UK.
All figures quoted are in sterling terms to 31 March 2017 unless otherwise stated.
Investment markets and conditions can change rapidly and, as such, the views expressed in this update should not be taken as statements of fact nor be relied on when making investment decisions. Forecasts are opinions only, cannot be guaranteed and should not be relied on when making investment decisions.