So far, so good! That is what many investors must be thinking about the first couple of months in 2023, with Tesla up 87% and Meta putting on 38%. Even less exciting UK companies have seen significant share price rises, like the 39% jump at building product maker SIG.
But many prices are still below where they stood a year ago. SIG is up 15% in that period, but Tesla and Meta have lost 24% and 17%, respectively. So, with many share prices still below their former levels and strong momentum in the first couple of months this year, could March see a booming stock market?
Possible upward drivers
Nobody knows what will happen. But I do see reasons to be confident about the outlook for the UK stock market in March.
It continues to look undervalued on many metrics. SIG’s underlying operating profit for its most recent year is expected to come in at around £80m. Yet even after its storming start to 2023, the SIG share price equates to a market capitalisation of £480m. That seems cheap to me.
Across the London market there are quite a few other shares that look cheap to me based on their price-to-earnings (P/E) ratio.
Some seem undervalued in other ways. The P/E ratio at J D Wetherspoon does not appeal to me, but I topped up my holding this month because I think the pub chain’s prospects are strong. With results due in March, I will be keeping an eye on how Spoons is performing.
ISA season approaching
Another possible driver for a stock market lift in March could be improving sentiment about the economy. While the UK is not posting strong (if any) growth, it is also not doing as badly as feared. For now the country is not in recession.
On top of that, with the usual rush of investors looking to add to their Stocks and Shares ISA before the deadline in early April, popular shares could see prices pushed up.
But I reckon these factors add up to a potentially strong March, rather than a brilliant one.
Some risks
I also think there could be reasons for the stock market to move downwards in March.
The 4.5% gain seen in the FTSE 100 since the beginning of January represents close to half of its total gain over the past 12 months. Investors may be ready to take a breather.
On top of that, the economy still feels like it could go either way. While for now we are not in a recession, it is easy to see how we might fall into one. Demand in some areas is weak and inflation remains a challenge. That could hurt profits at many firms.
Looking to the long term
Overall, though, I think now is a great time to snap up carefully chosen bargains in the stock market.
Whether or not they move up in March, by buying into great businesses when they have what I regard as attractive valuations, I hope to build wealth over time as an investor.
That was the rationale behind my recent move on Spoons and other February purchases like Alphabet. I will continue to apply the same approach in March — and beyond.
