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Market Update

January 2017 UPDATE

UK stock market falls back after hitting all time high in mid-January

The UK stock market hit an all-time high in the middle of January. Share prices then reversed direction, with the market giving back all of its gains to end the month slightly lower.

Mining companies were responsible for much of the initial upward move. Their shares were boosted by expectations of economic growth. Investors think that the new Trump administration’s proposed policies of greater US infrastructure spending and the slashing of regulations will increase inflation and boost demand for precious and industrial metals. Demand for the latter could rise if there is a growing need for building materials.

During the second half of the month, political concerns came to the fore. So far, the UK stock market has not been affected by the country’s impending departure from the European Union. However, there were growing worries about the effects of a so-called ‘hard-Brexit’, in which the UK will no longer be a member of the single market or the customs union.

US equity markets began the year on a positive note, although there were periods of volatility during the month. Following his inauguration as president, Donald Trump issued numerous executive orders, including one that clears the way for two controversial oil pipelines. This boosted the share prices of oil producers, as the pipelines will provide a quicker route for oil to reach refiners on the Gulf Coast.

After some volatility, European equity markets were almost flat over January, finishing the month slightly lower than they started. Japanese and most emerging markets indices also rose. Investors took confidence from data showing stronger-than-expected Chinese economic growth.

Movements in US government bond prices were muted in January, with that of 10-year Treasuries falling slightly over the month. Elsewhere, the price of German 10-year bonds fell a little more sharply, due to concerns about inflation. The yield on UK government bonds rose to 1.42% as prices declined. Corporate bonds performed marginally better than their government-issued counterparts, but still suffered losses over the month.

The traditional end-of-year flurry in the property market helped to boost full-year returns for the asset class (latest data to end-December 2016). UK property posted positive returns over the year, despite signs of a weaker market and difficult trading conditions following June’s vote to leave the European Union.

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 January 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.