Latest financial market update

Being aware of what’s affecting financial markets can help you understand how your investments are performing. 

Markets are influenced by a range of factors. Interest rates and inflation affect how confident consumers and businesses feel, which in turn shapes market behaviour. Economic news, company results, political events and global shocks – such as elections, conflicts or unexpected crises – can also move prices up or down. Even investor emotions play a role: when people feel optimistic, markets tend to rise, and when they feel uncertain or fearful, markets usually fall.

Highlights

• Just before the end of February, after markets had closed for the weekend, the US and Israel launched airstrikes on Iran. When markets reopened in early March, share prices dropped globally, and oil and European gas prices surged sharply higher on supply concerns. Uncertainty has continued to cause volatility - or ups and downs - in markets through March. 
• In February, stock markets around the world had risen, helped by shares in Japan, the UK and emerging markets. The MSCI ACWI Index, which represents a range of companies from around the world, increased in value by 3.4% in February. But, as at March 20th, the same index had dropped back 6.1% since then.
• Shares in the US were among the weaker performers in February, driven partly by volatility in share prices of companies related to Artificial Intelligence (AI), amid worries about their large spending plans.

Shares

Shares have fallen over the first weeks of March across all major regions as conflict in the Middle East caused uncertainty. This follows rises in February, with Japan and the UK performing strongly.

In the first few weeks of March, global markets dropped as worries about the US-Israel airstrikes on Iran led to volatility. As oil prices rose, it sparked concerns that higher energy costs could push up the price of other goods.  Certain sectors - like energy and defence - have been holding up better, while consumer focused businesses have felt more strain. Investors are now watching how long tensions last, as prolonged disruption could keep volatility elevated.

In contrast, in February global stock markets had mostly seen prices rise. In the UK, the FTSE 100 of the UK’s biggest companies increased strongly as investors’ focus shifted away from US AI companies. In the US, the share prices of software companies struggled on worries about AI hitting sales. There were robust job gains in the US during January, helped by new job hires in health care and construction. In Europe, hopes of improved economic growth helped shares go higher. Japan’s new prime minister won a general election, which boosted hopes for Japan’s economic growth.

Emerging markets and the Asia Pacific region made strong gains in February. India reached a trade deal with the US, which provided a boost to shares. However, shares in China were weak during the same period on worries about possible slowing growth levels.

Bonds

Global government bond markets have fallen back over the first few weeks of March, after broadly doing well in February.

Bonds are loans to a government or company in exchange for regular interest payments and your money back later. When bond prices go up, yields, or the return you get from a bond, go down, and when bond prices fall, yields rise.

Over the first few weeks of March, government bonds yields in many countries have generally risen, which means bond prices have fallen. This is because of worries about the potential for rising oil prices to cause price rises for other products and this could affect interest rate decisions. Before the airstrikes, UK interest rates had been cut several times. But on 19th March, the Bank of England kept rates at 3.75% and is continuing to monitor the situation in the Middle East and its potential impact on inflation, when the average cost of everyday goods and services rises.

Over the month of February, bond markets had generally done well. Government bonds mostly rose in value and broadly did better than bonds issued by companies, known as corporate bonds. Yields on UK government bonds, known as gilts, dropped overall, which means prices went up. In the US, government bonds yields declined on worries about AI companies.

Outlook

Despite market volatility linked to the conflict in Iran and rising energy prices, the long-term investment outlook broadly remains resilient. While higher oil prices and geopolitical uncertainty have created more short-term bumps than expected, many experts still believe that global growth and long-term market returns can remain positive - provided tensions ease over time.