Stock Market Uptrend: Is Investing in UK Shares Worthwhile After Eight Years of Successive Gains for FTSE 100?
FTSE 100 Climbs for 13th Straight Session, Outperforming S&P 500
The FTSE 100 index concluded trading today with a 0.37% increase, marking its best run since early 2017, spanning 13 consecutive sessions. Amidst recent tariff-related disruptions, the blue-chip index has demonstrated a robust performance this year, surpassing its US counterpart's returns significantly.
As of market close on April 30, the FTSE 100 had increased 3.9% year-to-date, whereas the S&P 500 is experiencing a 6% decline over the same period. Susannah Streeter, head of money and markets at Hargreaves Lansdown, attributes the FTSE's recent string of gains to the receding "Trump trade shock" and the temporary suspension of tariffs.
Optimism abounds in the market, bolstered by a series of positive corporate results. Strikingly, various sectors have contributed to the FTSE's growth, demonstrating a broad-based confidence. The UK market's perceived stability relative to other regions is also contributing to this upswing.
While the UK does have trade ties with the US, it has managed to avoid the 20% tariff levy threatened for the European Union. Instead, it has been subjected to a 10% minimum tariff. In comparison, China has faced an effective tariff rate of 145%, with some Asian countries facing tariffs of up to 50%.
This latest surge in the FTSE has allowed it to recoup most of the losses incurred on April 2, when Trump's tariffs instigated a global market crash. It's worth noting that the UK market could offer attractive valuation and income opportunities, given its historically cheaper valuation compared to US equities and its reputation for delivering investment income through dividend stocks.
According to data from Bloomberg, the FTSE 100 has a price-to-earnings ratio of around 12.5, while the S&P 500 appears more expensive at 23.8. As investors express growing skepticism towards the outlook for US equities, the relative attractiveness of the UK market may encourage a stock market rotation.
UK equities have a strong track record when it comes to income generation, with the FTSE 100 housing some attractive dividend stocks. Despite total dividend payments being 4.6% lower in the first quarter of 2025 than the same period the previous year, UK companies still returned £14 billion to investors in total. The UK market as a whole is expected to yield 3.7% over the next 12 months, according to stock transfer company Computershare.
When comparing the UK's main market index (FTSE 100) to other indices like the FTSE 250, it is worth noting that the former is more globally exposed due to the international operations of most of its constituent companies. Potential trade deals with the US could benefit small and mid-cap companies more significantly, as they are more exposed to the domestic economy.
In a report published this week, Stifel research analysts Iain Scouller and William Crighton suggest that a trade deal would likely lead to the removal of most, if not all, current 10% reciprocal tariffs. They believe UK exporters could see a boost in their revenues as a result, particularly compared to exporters in other countries facing higher tariffs.
However, it's important to note that small and mid-cap companies have underperformed large-cap companies in recent years and are potentially more impacted by domestic headwinds like the recent increase to employers' National Insurance contributions. Investors interested in hedging their bets across a range of market caps might consider a FTSE 350 tracker fund, which offers exposure to both the large-cap FTSE 100 index and the mid-cap FTSE 250. Those seeking exposure to small caps as well could consider a FTSE All-Share tracker.
- The robust performance of the FTSE 100 this year, evident amidst tariff-related disruptions, suggests an attractive valuation for finance-focused investors, given its historically cheaper valuation compared to US equities and its reputation for delivering investment income through dividend stocks.
- As the UK market could offer promising income opportunities, it is essential to consider the potential for stock market rotation as investors express growing skepticism towards the outlook for US equities, particularly in light of the relatively higher price-to-earnings ratio of the S&P 500 compared to the FTSE 100.
- On the subject of technology, it's interesting to note that a removal of most, if not all, current 10% reciprocal tariffs, as suggested by Stifel research analysts, could lead to a boost in revenues for UK exporters, providing an incentive for investing in the UK market, particularly in the tech sector, which is globally exposed through the operations of most of its constituent companies in the FTSE 100.
