Inflation continues downward trend

UK inflation fell to 3.2% at the last read – that’s its lowest point for more than two and a half years. It’s still above the Bank of England’s target of 2%, but it’s very welcome news considering that the inflation rate was at a decades-long high of 11.1% in October 2022.1 This downward trend is expected to continue next month, when the energy price cap fall will be factored in. 

 

FTSE goes from better to best

The FTSE 100 saw a new all-time high of 8,147, and an overall rise of 2.67% for the month.2 The move was made possible thanks to strong showings from supermarket chains M&S and Sainsbury’s, and retailers including Next.

 

Why does the stock market go up over time? 

It’s an investor’s bread and butter – look to the long term. That’s because most indices around the world have increased in value when you increase the time frame.  But why does the stock market go up over time? 

Well the answer is simple: growth. It doesn’t happen overnight, and it doesn’t happen in a straight line – but companies and national economies have typically gotten bigger as the years have marched on. 

The companies that don’t get bigger don’t attract investors – what’s the point in investing in a company that doesn’t offer a return on your investment? The ones that do get bigger attract more investors because they do offer a return on investment. Attracting more investors means they succeed. 

For example, Apple had $182 billion in sales with a net profit of $39.5 billion in 2014.3 Fast forward to 2023, and those numbers were $383 billion and $97 billion respectively.4 Over that timeframe, they paid out more than $100 billion to their investors in dividends.3

This is just one example of company growth. And Apple isn’t the only company included in the stock market – thousands of companies are. That’s why the stock market and stock market indices go up over time – it’s a representation of the collective positive performance of a majority of companies (or at least, a majority of the companies that count).

Read more about how market indices are calculated

If a majority of those companies aren’t doing well, that’s when the market declines. But – declines are just a normal part of stock market cycles, and they aren’t something to fear.

 

S&P 500 ends down

Earnings season in the US failed to save the S&P 500s month. The US market’s main index finish 3.97% down.5 Mixed earnings from the so-called ‘magnificent seven’ – the group made up of the seven largest companies in the US (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla) contributed to this. 

These seven companies have long had a disproportionate impact on the performance of US stock market indices. It’s for this reason that some investors choose index funds like the Russel 2000 instead. This index tracks 2000 small-cap US companies, so it’s less impacted by the performance of tech giants like Amazon, Apple, or Microsoft.

Moneybox included a Russel 2000 ETF in our recent ETF expansion. Head in-app to Explore all investments > Funds to check it out. 

 

All investing should be long term (min. 5 years). The value of your investments can go up and down, and you may get back less than you invest.

 

1 ONS, 17 April 2024

2 Google Finance, 30 April 2024

3 A Wealth of Common Sense, 3 May 2022

4 CNBC, 29 December 2023

5 Google Finance, 30 April 2024