So just what is compound interest?

You may already be familiar with the concept of earning interest such as through your bank account. You put in £1000, the bank pays you say 2% per year and at the end of the year you’ve earned £20.

It doesn’t sound much I know. However, compound interest refers to the interest you then earn on that £20, so you have earned interest on your interest. This means even if you didn’t put more money into the bank, the amount you earn increases each year.

UK MARKETS

Catching up to developed market peers

UK equities broadly followed global trends, albeit with the recognition that they have trailed developed markets for a sustained period, most notably the US. A strong rally in commodities meant large index heavyweights, such as BP (+7.6%) and Shell (+6.8%), outperformed, while mining stocks also fared well owing to this tailwind. The market also saw a steady stream of corporate acquisition offers and activity (for example, Wincanton, DS Smith, Spirent) despite confirmation that the UK has been in a technical recession. Sterling appreciated versus major currency pairs, while Gilt yields declined on the back of better inflation data.

Up 4.2% (UK All Share)

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US Markets

Continue their upward trajectory

US equities moved higher through February, driven chiefly by gains in the Consumer Discretionary (+8.6%), Industrials (+7.0%), and Information Technology (+6.2%) sectors. Despite the recent cycle of interest rate hikes, the US economy continues to remain resilient and even above expectations in areas, almost expansionary territory, given the recent growth and PMI indicators. The ‘Magnificent Seven’ stocks are increasingly looking like the magnificent three (Nvidia, Meta and Amazon), with Q1 earnings exacerbating this trend. The dollar moved higher in the month, while fixed income has languished year-to-date, with investors now expecting that the Fed will not cut rates until later in the year.

Up 5.2% (US 500)

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UK MARKETS

Weak performance as a result of inflation data

The UK market saw negative returns on the back of December Core CPI inflation (+5.1%) coming in way ahead of expectations, dampening any hopes for interest rate cuts from the Bank of England. This sapped some of the euphoria that we saw the previous month, particularly in the more interest rate sensitive sectors. Mining, oil, and banks all underperformed a weak overall UK market, as global sector sentiment (positive technology, negative global cyclicals) proved an additional headwind. Miners were particularly weak as investors reacted to negative news from China, and on electric vehicle sales.

Down -1.4% (UK All Share)

Its amazing how quickly the markets can change their minds!

UK MARKETS

Strong energy stock performance could not curtail overall weak results

In spite of surging natural gas and gold prices contributing to strong performances from energy-related stocks, which the UK has a meaningful exposure to, the UK markets declined overall. In terms of exposure, largecap stocks outperformed small-cap stocks, and growth stocks outperformed value ones. With the overall financial ‘health’ of the UK consumer remaining a concern on the back of a drop in consumer confidence and house price worries, gilts continued to sell-off and most sectors, including the banks, delivered weak performance.

Down -4.2% (UK All Share)

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Although you wouldn’t build a long-term portfolio strategy on this approach, there is much to be said about a Christmas rally

UK MARKETS

Strong energy stock performance could not curtail overall weak results

In spite of surging natural gas and gold prices contributing to strong performances from energy-related stocks, which the UK has a meaningful exposure to, the UK markets declined overall. In terms of exposure, largecap stocks outperformed small-cap stocks, and growth stocks outperformed value ones. With the overall financial ‘health’ of the UK consumer remaining a concern on the back of a drop in consumer confidence and house price worries, gilts continued to sell-off and most sectors, including the banks, delivered weak performance.

Down -4.2% (UK All Share)

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