Will the stock market rally in March?

Most of the world enjoyed a stock market rally in March but the UK was a disappointing exception. So when will the FTSE 100 start to play catch-up?

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February delivered a strong stock market rally, just not in the UK. The US S&P 500 jumped 4.91%, while the Euro Stoxx 50 rose 5.16%. In Japan, the Nikkei 225 ended the month 8.76% higher at 39,100, finally beating the record high set in 1989, at the height of the country’s stock and property bubble.

Even China had fun in February, with Shanghai’s SSE Composite up 8.82%. The FTSE 100 was a laggard, closing just 0.1% higher at 7,630.02. It’s down 3.95% over 12 months.

FTSE falls behind

Personally, I don’t think the tracking the index is the best way to invest in UK shares. I’d much rather buy individual stocks. Rolls-Royce smashed the market again, up 21.32% in February. Insurer Beazley was close behind, up 19.72%, while Intercontinental Hotels Group (LSE: IHG) rose 14.33%.

The hotels chain has had a stormer, up 52.59% in 12 months. Normally it’s the unsuccessful stocks that go under my radar, so I’m surprised (and annoyed) I missed this smasher.

IHG’s full results showed key global revenue per available room (RevPAR) climbing 16.1%, as Europe, the Middle East, Africa, and Asia outperformed the Americas. The end of Covid lockdown restrictions in China did little for the country’s wider economy but a lot for IHG, as RevPar rocketed 71.7%.

A 23% increase in operating profits to $1.02bn and net cash of $893m further bolsters the buy case but IHG looks a bit too pricey for me trading at 28.1 times earnings. I prefer buying stocks before they recover rather than afterwards.

I’m now on the hunt for undervalued FTSE 100 stocks, and there are plenty to choose from. Pharmaceutical group GSK looks tempting trading at just 10.77 times earnings. As does Burberry Group at 10.37 times. I’m keen to top up my holding in JD Sports Fashion, which looks even cheaper at just 8.8 times.

I’m readying myself for the recovery

Markets have spent the last year waiting for inflation to peak and interest rates to fall. That’s the event most likely to fire the starting pistol on the next stock market rally.

Investors jumped the gun before Christmas, convincing themselves we’d see five or six rate cuts in 2024. January’s higher-than-expected inflation figure brought the FTSE 100 to earth with a bump. February’s consumer price inflation figure is published on 20 March. If it’s down sharply from January’s 4%, we could get that rally.

I’m not convinced. Yesterday, the Fed’s favoured measure of inflation come in at 0.4% month on month, double the 0.2% investors wanted to see. In the US, markets are pencilling in a May rate cut. I doubt the Bank of England will jump first — it’s far too cautious.

We may have to wait until June for the first BoE base rate cut. The FTSE 100 may rally before then, as markets buy the rumour. We could have some fun in March, but I’m not convinced.

That’s fine. Another slow month gives me time to buy more cheap UK shares before they potentially rally. I won’t be buying a FTSE 100 tracker, though. Too dull.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has positions in JD Sports Fashion. The Motley Fool UK has recommended Burberry Group Plc, GSK, InterContinental Hotels Group Plc, and Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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