As we end the first quarter of 2016 the FTSE 100 stands close to where it started the year, but it’s been anything but a sideways journey. In fact, the first three months of 2016 have been the most volatile start to a year since 2009, when markets were in the throes of the financial crisis.
In 2016 the headline FTSE 100 index started the year at 6,242, sank to a low of 5,536 in February and recovered to close at 6,175 on 31st March 2016. Pretty much back to square one for the year then. Laith Khalaf, Senior Analyst, Hargreaves Lansdown: ‘If you weren’t holding on to your hat, you would probably have lost it as a stock market investors in the first quarter of this year. The market can be a capricious beast over short periods, and this year’s lurch downward and subsequent recovery highlights the importance of not getting carried away by sentiment. The rebound has come as a result of some recovery in commodity prices, and a retreat from the extreme pessimism that pervaded markets at the start of the year. A little loose monetary policy doesn’t hurt either, with more QE announced in the Eurozone, and Janet Yellen dampening expectations of rate rises in the US.
The problem for central banks is that if they hurt the economy by raising rates too soon, they haven’t really got much in the locker to put things right again. This will probably lead them to err on the side of caution when it comes to monetary policy, and is likely to mean low rates for the foreseeable future. This should be supportive of stock prices, though unfolding economic data, particularly from China, will also have a big say in where markets go from here in 2016. Investors need to take a step back and look a bit further out though. The UK stock market is nether cheap nor expensive by historical standards, which means investors putting money in the market today are getting a relatively fair price.’
Best and worst performing FTSE 100 shares
Laith Khalaf, Senior Analyst, Hargreaves Lansdown: ‘Despite a slew of really ugly results it’s been the mining companies who have claimed the top spots in the Footsie so far this year. Anglo American and Glencore have been two of the most volatile stocks in the index of late, lurching from the top of the Footsie to the bottom in a matter of hours at times. Gold mining companies have performed well as economic fears and negative interest rates have driven the price of gold up from $1,061 to $1,230 an ounce so far this year. Outside the mining sector there are other turnaround stories in the top ten performers. Morrison, Tesco, Pearson and Rolls Royce are all companies which have had a torrid time of late, and may just be showing signs of turning the corner.’
Laith Khalaf, Senior Analyst, Hargreaves Lansdown: ‘It’s clear the banks have been put on the naughty step in 2016. With the exception of Lloyds, all four of the FTSE 100 banks find their way into the bottom ten performers so far this year. Barclays and RBS have done particularly badly, as investors punished them for delaying dividends, and still being some way off rude health seven years after the financial crisis. The banks have also been marked down as a result of the continued low interest rate environment. While they are at different stages of recovery, they are all at least heading in the right direction. However the risk is that while they are in the process of getting to their feet, an economic slump knocks them back down again.’
