After a strong 2022, it has proven to be a mediocre year for the British market.
While other global markets recovered on the back of higher interest rates and inflation, the FTSE 100 and FTSE 250 languished under economic uncertainty.
Market movements in the second half of the year were dominated by erratic repricing of interest rate expectations as investors juggled competing data on the health of the UK economy and markets tried to guess when a cut would come.
Although the FTSE 100 has largely ended the year where it started, there have been some stocks that have made significant gains, while others have not done as well.
Rolls Royce and M&S led the FTSE 100 in 2023, while miners Anglo American and Fresnillo struggled
How has the UK market fared this year?
In the early days of 2023, the UK market got off to a flying start as optimism grew that central bank rate hikes could soon come to an end.
Bond markets had increasingly anticipated the prospect of spending cuts before the end of the year.
The FTSE 100 continued its strong performance from 2022, breaking the 8,000 mark in February, helped by its weighting towards major energy and banking stocks.
However, persistent inflation began to weigh on equities as the Bank of England continued to raise interest rates, causing chaos in mortgage markets.
The FTSE 100 was also hit by the impact of the collapse of Silicon Valley Bank in March, which sent bank shares into a massive sell-off.
The FTSE 250, which has a greater concentration of domestically focused shares, fell 5.4 percent at mid-year, reflecting pessimism about the prospects for the UK economy.
Since then, the Bank of England has paused interest rate increases at the current level of 5.25 percent, indicating that we have reached the peak of interest rates.
Although markets have already priced in a key rate cut in May 2024, the central bank has made efforts to push back overly optimistic forecasts.
A series of better-than-expected inflation figures have seen both the FTSE 100 and FTSE 250 flat again this year.
By comparison, the S&P 500 and Nasdaq gained 23 and 42 percent, respectively.
Michael Hewson, chief market analyst at CMC Markets, said: 'Over two years the FTSE 100 has outperformed slightly in line with its peers… Against the Dax and S&P 500 it has been a steady performance, compared to the peaks and valleys of the latter.
'But that's still small consolation, if you look at it over a longer timeline. The last twenty years have been a consistent story of serial underperformance for the FTSE100.”
Which stocks have performed well in 2023?
While key FTSE 100 sectors such as energy and resources performed well last year, the best performing sectors of 2023 were less defensive.
This year, Rolls Royce and Marks & Spencer have had their own turnaround stories, sending their share prices soaring.
Rolls Royce achieved profitability and positive cash flow in 2023 after significant headwinds during the pandemic, which saw demand for aircraft engines fall.
New CEO Tufan Erginbiligic's restructuring to focus more on engines and defense has helped the shares rise 221 percent between December 31, 2022 and December 20, 2023.
Laith Khalaf, head of investment analysis at AJ Bell, said: 'It has been a whirlwind year for Rolls Royce, with cost-cutting measures and a revival in air travel leading to improved business performance and a major shift in investor sentiment.
'Erginbilgic will be quite pleased with himself after taking over in January, describing the company as a 'burning platform', but after performing this year it looks more like a firecracker.”
| Winners | Price gains on shares | Losers | Share price decline |
|---|---|---|---|
| Rolls Royce group | 221% | Anglo-American | -38.3% |
| Marks & Spencer Group | 120% | Sint-Jacobsplaats | -34.7% |
| 3i Group | 82.6% | Fresnillo | -34.5% |
| Sage Group | 61.2% | Burberry group | -25% |
| Taylor Wimpey | 53.5% | British-American tobacco | -24% |
| Medium capital group | 53.2% | To entail | -21.8% |
| InterContinental Hotels Group | 53.1% | Prudential | -21.6% |
| Barratt Developments | 52.5% | Croda International | -21.3% |
| Associated British foods | 51.9% | Diageo | -19.8% |
| Howden Joinery Group | 51.8% | Beazley | -18.9% |
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MRS has seen a similar turnaround, with CEO Stuart Machin's push for sales finally gaining momentum.
Thanks to strong Christmas results, 2023 got off to a good start, with both the Clothing & Household and Food divisions performing well.
The retail giant's shares had been in a downward trend since 2015 as investors mourned falling sales before bottoming out at the height of the pandemic in May 2020.
The share price is up 120 percent this year and is paying dividends for the first time since the pandemic, albeit at just 1 pence per share.
Hewson said: 'The less pessimistic outlook for the UK economy has led to strong performances from other retailers such as Primark owner Associated British Foods, Next, B&M European Retail, as well as travel and leisure in the form of IAG, IHG and Premier Inn owner Whitbread. Hewson said.
It also proved to be a positive year for housebuilders Taylor Wimpey and Barratt, despite chaos in mortgage markets after interest rates shot up.
Khalaf said: “The market was already anticipating tighter monetary policy and as a result, homebuilder shares were trading at extremely low levels this time last year.
'The property market has so far proven more resilient than many people expected, and recent hopes for rate cuts in 2024 have put some light on the housing sector's performance.'
Which stocks have fallen the most in 2023?
On the other hand, mining companies suffered from commodity price pressure due to demand fears.
Anglo-American fell 38.3 percent in the period to December 20, 2023, as the decline in iron ore, copper and coal prices negatively affected sales and profitability prospects.
Chris Beauchamp, IG's chief market analyst, said: 'The mining sector faces concerns about weakening global growth, high inflation and possible recessions. These factors weigh on demand and pricing for Anglo's commodity positions.
'As a result, the company may experience a decline in demand for its raw materials, which could further impact profitability.'
Fresnillo also came under pressure this year, mainly due to inflation and falling metal prices, with the share price falling 34.7 percent.
Beauchamp said: “In addition to cost-related challenges, Fresnillo has also experienced issues in its manufacturing processes.
“The company had to revise its full-year production guidance for 2022 due to lower ore grades and delays in development projects. These issues raise concerns about the company's ability to achieve its growth objectives.”
Sint-Jacobsplaats Shares have taken a big hit following the introduction of Consumer Duty rules by the Financial Conduct Authority in July.
According to the new regulations, all financial services providers must provide 'fair value' and 'timely and clear information' to customers.
Watchdogs have long been concerned that SJP charges customers excessive or unfair fees for financial advice and early withdrawals.
Shares have fallen about 30 percent since the introduction of the rules, which forced SJP to scrap exit charges for new bonds and pension investments.
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