A remarkable chart caught my attention this week. I had to re-read the title to check I wasn’t hallucinating.
The chart showed that since the start of this year, the FTSE 100 had outpaced the Nasdaq – and outperformed it bigly.
While the US index has tumbled 6% since the start of the year, London’s premier index was up 5%. There hasn’t been quite such a pronounced difference in the fortunes of the two indexes in a long time – at least, not in the FTSE’s favour.
This is only two months of data, of course, so it’s a bit premature for suits in the City to start popping champagne. And there are reasons to think this trend won’t last.
First, one of the biggest drivers of the Nasdaq’s decline has been Nvidia, which has seen several hundred billion dollars wiped from its value following the emergence of AI challenger DeepSeek. But since Nvidia’s stock had tripled in value in the space of a year, it was due a correction.
Second, one of the biggest drivers of the FTSE’s rise has been defence stock BAE systems, which is up over 40% since January, adding tens of billions of pounds to the exchange. But that is a bet on Europe having to rearm to handle the Russian threat, rather than a vote of confidence in London.
Third, the Nasdaq is now largely back to where it was prior to the election of Donald Trump, after which things got frothy. Optimism that the Donald would be a boon for the markets has faded – but that does not mean all of the US is now a ‘sell’.
There are a few reasons to think London won’t lose its edge over New York just yet. For a start, the erection of tariffs – taxes on goods – has brought about huge uncertainty across supply chains in America. Even if Trump ultimately pares them back, the constant humdrum of random executive orders popping out of the White House is slowly eroding business and consumer confidence, the longer it goes on.
Second, Trump is planning deep cuts to federal spending – and Elon Musk, captain of DOGE, is already boasting about all the “vast numbers of unused software licences” that are now being cancelled. If you’re a SaaS firm exposed to the $6.8tn money machine that is the US government annual budget, you can expect to lose a big customer.
Third, as Trump plans for more reshoring of domestic industry over reliance on overseas businesses – including in semiconductors – what’s to stop Europe following suit? As the FT’s Janan Ganesh put it this week, to distance itself from the US, ironically Europe has to become more like the US. That’s not to say we’ll all cancel our Microsoft Word subscriptions and log off from Facebook, but businesses and consumers may find it more expedient (and less morally unpalatable) to seek solutions closer to home. Maybe we’re already seeing some of that in the EV market, with Tesla’s market share declining, and Mini’s picking up, as I reported last week.
It would be a fool’s errand to bet against the Nasdaq, which has doubled in value since the start of the pandemic, but US tech firms have a much less straightforward path to growth in the coming years.
Meanwhile, perhaps the London Stock Exchange has more of a growth story to tell. Though it will take a few years, pension funds are getting serious about pouring cash back into UK equities, and as I wrote last week, the new PISCES market promises to lure fast-growing businesses, and not just British ones. If we can get only a handful of our dozens of tech unicorns to join the stock market, London will be back in business. Let’s make it happen.
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