Stocks have had a fine February, but what will March bring? 

There’s light at the end of the tunnel for investors as pandemic lockdown restrictions begin to ease.

Investors feared the worst mid-January when stocks began a rapid retreat. By the end of the month, the FTSE 100 was down around 7% from its multi-month peak just a few weeks before.

But they needn’t have worried. Despite mixed data and newsflow, February has been lucrative, with the FTSE 100 up 3.8% in the month so far, and the FTSE 250 mid-cap index around 4.8% higher. Overseas markets have been strong, too, with the Dow Jones up 4.7% and S&P 500 up 3.1%. 

A global rollout of Covid vaccines provides a chink of light at the end of the tunnel, and UK prime minister Boris Johnson has already spelled out the UK’s roadmap out of lockdown. 

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Admittedly, there has been a wobble in the tech sector, coming under pressure as investors switch into so-called value stocks. Selling of bonds, which pushes bond yields up, also accelerated following encouraging economic data. That raised concerns about inflation and riskier assets on high valuations like technology stocks, causing the Nasdaq Composite to fall sharply on 25 February. The index is now up just 0.4% in February and the Nasdaq 100 is down 0.8%.

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Markets are beginning to think more about inflation, which they fear could begin to rise in the months ahead. That’s partly because of optimism around China’s economic recovery from the pandemic which is causing an increase in commodity prices. Stimulus measures, especially in the US, will also likely have an effect on demand and consumer prices.

Looking ahead to March, statistics suggest there’s a slightly worse than 50:50 chance of positive stock market returns for the month. The FTSE 100 index has fallen 11 times in March over the past 20 years, including the 15.4% slump in March 2020 at the height of the Covid crisis.

Chancellor Rishi Sunak will reveal his Budget on 3 March, and the Bank of England with announce its latest interest rate decision on 18 March.

From 8 March, Covid restrictions in England also start to lift as part of the government’s four-step roadmap back to a more normal life. Kids go back to school on 8 March and, on 29 March, outdoor gatherings of either six people or two households will be allowed in time for the Easter holiday.

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And March is typically the busiest month of the year for dividend payments by FTSE 100 companies. Among them this year are BHP Group (LSE:BHP), BP (LSE:BP.), Shell (LSE:RDSB), SSE (LSE:SSE), PayPoint (LSE:PAY) and Hargreaves Lansdown (LSE:HL.).

Also watch out for a flurry of results announcements from UK mid-cap companies. Too soon for the exit from lockdown to have any effect, but it will give us a better idea of the health of the UK economy and corporate sector, which could trigger share price movement one way or the other.

The UK’s resurgent IPO sector could also receive a further boost as food takeaway delivery firm Deliveroo is expected to give more detail on its stock market flotation.

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