Interactive Investor

Market snapshot: what is behind the FTSE 100’s tepid performance?

3rd September 2020 09:44

Richard Hunter from interactive investor

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Despite Covid-19 many major indices rose this year, but not the one tracking the UK’s largest companies.

The contrast between the real economy and the US market in particular is becoming increasingly stark, as each of the major indices are now in positive territory in the year to date.

Despite the economic impact of the pandemic, with unemployment still an issue and signs of the job market cooling, a glance at the 2020 charts would suggest Covid-19 never happened. 

Indeed, the tech rally has now broadened to the wider equity market, with the Dow Jones Industrial Average now up by 2% in the year to date and the S&P 500 11%. Meanwhile the Nasdaq continues its unwavering surge and is now ahead by 34% in 2020.

Questions still remain. If the current situation is simply the initial rebound from the pandemic, there could be some difficulty in maintaining the growth curve. 

The US presidential elections and indeed souring relations between the US and China are also on the radar, while general political tensions could yet taint sentiment.

Even so, the major monetary and fiscal stimulus which has already been injected, along with the possibility of more to come, has put some strong buffers in place to underpin the economic recovery.

Unfortunately, UK investors have not got the memo.

The FTSE 100 remains down 21% in the year to date, having fallen out of fashion again with institutional international investors. 

For the time being, the recent strength of sterling (against a weaker dollar) has weighed against the index, the previous attractions of punchy dividend yields have for the most part been temporarily removed.

The additional complications of the UK discussions around its exit from the EU also leaves the index too difficult to consider at present, with better value perceived to be elsewhere.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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