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FTSE 100 Q1 recap: a volatile quarter

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The first quarter of 2018 is over and I’m sure it will be one that many investors would prefer to forget about. Here’s a brief recap of how the FTSE 100 performed over the last three months.

Volatility returns

After a decent 2017, in which the UK’s blue-chip index generated a total return of 11.9% with low levels of volatility, 2018 started on a positive note. Upward momentum from December carried over to the new year, with the index rising from just below 7,700 points at the start of January, to an all-time high of just under 7,800 points around the middle of the month.

However, that’s where the fun stopped. The FTSE 100 slipped back towards the end of January as the pound rose against the dollar (offsetting earnings of companies with US operations), before plummeting sharply to below 7,100 points in early February, as concerns over rising interest rates in the US triggered a sell-off across global markets. There was a slight recovery in late February, before further declines in March. The index closed the quarter at 7,056 points – an 8.2% fall for the quarter.

Let’s take a look at how individual sectors performed.

Banks

Q1 was a mixed quarter for the UK banks. Shares in Lloyds Banking Group traded as high as 72p in January before falling back to 65p by the end of the quarter, despite the bank reporting a solid set of results and increasing its dividend by 20%. Barclays also had some good news on the dividend front, stating that it plans to increase its dividend this year too. Barclays shares were relatively flat for the quarter. HSBC had a poor quarter, falling around 17% between mid-January and late March.

Oil

Shares in both Royal Dutch Shell and BP rose in early January, as the oil price climbed higher. However, oil fell sharply during the February sell-off, with Brent declining from around $71/bbl to $62/bbl and shares in the oil majors retreated. It’s worth noting that the price of Brent has since recovered to $68/bbl, yet the share prices of Shell and BP remain depressed.

Utilities

Utility stocks such as National Grid, SSE and Centrica remained out of favour in Q1. The sector is struggling at present due to concerns over renationalisation, interference from regulator Ofgem and a rising interest rate environment. We did see a little pick-up in sentiment towards the end of the quarter though.

Consumer staples

Even the usually-popular consumer staples stocks struggled during Q1. Shares in both Unilever and Diageo lost their positive momentum, while the tobacco companies were sold off heavily. British American Tobacco and Imperial Brands had terrible quarters, both falling significantly as investors rotated out of the group of stocks known as bond-proxies.

What to expect in Q2

If there’s one thing we can take away from the last quarter it’s that after an easy ride in 2017, the markets have returned to a more ‘normal’ state. Volatility is back. And with ongoing uncertainty over trade wars, plummeting US tech stocks and interest rate rises, it may not disappear soon.

However, volatility shouldn’t be feared. Sure, the investment environment has become more challenging in the short term, but there are now plenty of attractive investment opportunities appearing.

Stay calm, average into the market, and think long term, and you should be rewarded in the years to come.

Buy-And-Hold Investing

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Edward Sheldon owns shares in Lloyds Banking Group, Royal Dutch Shell, Unilever, Diageo and Imperial Brands. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Barclays, BP, Diageo, HSBC Holdings, Imperial Brands, Lloyds Banking Group, and Royal Dutch Shell B. 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.