FTSE 100 and S&P 500 post positive returns
June was a positive month for markets with the UK’s FTSE 100 up 1.15% and the US’s S&P 500 up 6.5%. This brings the return of the US market in 2023 to date to be an impressive 15.9% while the UK market has been broadly flat year to date.
The UK market has lagged behind for a number of reasons with the main reason being inflation seems to be “stickier” here compared to the US and indeed much of Europe. The US recorded an inflation figure of 4% last month and the Eurozone average was 5.5%. This is compared to the UK’s most recent figure of 8.7%.
Inflation appearing to be “under control” would allow the US and European central banks to stop raising interest rates earlier and potentially lead to interest rates cuts in 2024. Falling interest rates tend to be supportive of stock prices, hence why these markets have had better starts to 2023 than the UK (remember markets look 12-18 months ahead), where the Bank of England raised rates again at the end of June.
Bank of England base rate surprise
You’ll likely know that in June the Bank of England raised the base rateThe interest rate that’s set by a country’s central bank. Commercial banks can sometimes use it to determine the interest rates they offer on their savings accounts and loans – including mortgages. by 0.5% – higher than the predicted 0.25% increase – taking the rate to 5%. The move is intended to combat high inflation which remained unchanged month on month at 8.7% well above the target rate of 2%. The increase in interest rates should in theory encourage more people to save rather than spend which in turn should reduce inflation.
Understandably, many people with a mortgage or loan may be feeling worried about this rate rise as anyone on a variable interest rate may see their repayments go up. Conversely, those with savings may see a higher return.
It’s expected that inflation will fall later this year, however if it does remain stubbornly high then the Bank of England may look to increase interest rates further in order to bring inflation down. The next decision on interest rates will be in early August.
We know this can be a challenging time but we’re here to help. Read more about how the latest rate rise affects the housing market and how we can help you at the button below.
Tech giants leading US markets
Ahead of 2023, analysts expected the multiple interest rate rises in 2022 to trigger a recession in the US and consequently bring stocks down.
But instead, the US S&P 500 is up 15.9% in 2023 making this one of the best half-year performances it’s seen in the past 20 years. The index is in large part being led by seven tech giants – that is, Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta.
In June, Apple was up 8.01% and is surpassed $3tn market valuation as stocks soar. This is despite consecutive quarters reporting revenue declines – although, we know that Apple products are ingrained in today’s economy as absolute essentials.
Apple takes up one of the largest positions in many broad market indexes so its performance can have a huge impact on the whole market and often the S&P 500 performance rests on Apple and Microsoft. In fact, Apple makes up 7.1% of the S&5P 500 and is worth more than the UK’s top 100 listed companies together. To put that into context, Netflix makes up 0.44% and 32 other companies combined make up 6.3% of the index.
The S&P 500 gains demonstrate the advantages of investing in funds, which offer an easy way to invest in a range of assets and spread risk.
Good news story
If you’ve been reading these updates for a while, you know that we usually like to end with good news. The silver lining to increased base rates is that we’ve been able to increase the interest on money held as Available Cash. That means you can earn 3.8% (AER)* variable on the cash in your Stocks and Shares ISA, before you decide to invest it.
Important to know
*AER (annual equivalent rate) is the rate you will earn after a year, including compounding. The interest rate may change.
All investing should be long term (min. 5 years). Past performance is not a reliable guide to future gains. The value of your investments can go up and down, and you may get back less than you invest.
It’s important to note that we’re not allowed to give financial advice, so nothing in this content should be treated as being any kind of advice.
Source: Google Finance, 1 June to 30 June 2023
