S&P 500 versus FTSE 100: a tale of two indices

interactive investor examines the reasons behind the different performances of the US and UK markets.

Apple (NASDAQ:AAPL) and the S&P 500 have defied the Covid-19 economic disruption by soaring to new highs this year.

The iPhone maker became the first US company to reach a $2 trillion valuation – just two years after it hit a $1 trillion market cap. Despite its inflating valuation over the year, investors appear more confident on the outlook for Apple than they did prior to the coronavirus low point. Some 69% of trades in the stock on interactive investor so far in August (to 19 August) were buys, compared with 58% between 1 January and 23 March.

Apple is the second most bought US stock on the platform so far this month. Tesla (NASDAQ:TSLA) holds the number one spot.

Richard Hunter, Head of Markets, interactive investor, says: “Apple’s $1 trillion rally in just 24 months is truly remarkable. Apple, like many tech stocks, has been largely insulated from the Covid-19 economic downturn - despite having to close stores because of the pandemic. 

“The burning question now for investors is how high can Apple go? There has been an uptick in our customers who believe that more value can be squeezed from the fruit since the beginning of the year. A deep recession could spoil Apple’s bull run by knocking demand for its premium products like iPhones, iPads and MacBooks. However, Apple has a few strings to its bow and its services arm, which includes Apple Music and Apple TV, is likely to continue to be a revenue driver for the business regardless of whether the overall economy is growing or not.

“In addition, the US-China trade conflict remains a threat. Further escalation in the conflict could leave Apple, who are heavily reliant on Chinese manufacturing for products such smartphones, exposed.”

US vs UK

The difference in performances in the year to date of the US and UK market is stark.

The S&P 500 has clawed back from its Covid-19 plunge to reach a new (intraday) high on Wednesday, having closed at a record high on the day before. In stark contrast, the FTSE 100 continues to languish – down over 20% since the start of the year.

One of the key driving factors is the US index’s exposure to tech – and the FTSE’s lack of it. The Covid-19 pandemic has failed to take a bite out of technology stocks, which have soared as more people move more of their work and social lives online. 

The Fang+ index is made up of the top ten tech stocks and includes Facebook (NASDAQ:FB), Apple, Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL), Netflix (NASDAQ:NFLX), NVIDIA (NASDAQ:NVDA), Twitter (NYSE:TWTR), Tesla (NASDAQ:TSLA), Alibaba (NYSE:BABA) & Baidu (NASDAQ:BIDU). This index is up 63.4% year to date after nearly doubling in just a few months; up 97.8% from its March low. 

If you include Microsoft (NASDAQ:MSFT) along with the Fang+ stocks in the S&P 500 (Tesla, Alibaba and Baidu are not constituents of the S&P), these 8 stocks make up 24.9%, or just under a quarter, of the S&P compared to the FTSE 100 index, in which technology represents just 1.2%. 

For reference, the telecommunications sector represents a further 2.25% of the FTSE 100 and there are some large Biotechnology companies too, including the two largest constituents of the index - AstraZeneca (LSE:AZN) (7.46%) and GlaxoSmithKline (LSE:GSK) (5.03%). 

But overall, the lack of large technology stocks in the FTSE 100 goes a long way to explaining the disparity in performance between the US and UK indices. 

Richard Hunter says: “The enforced global lockdown led to a number of changes in behaviour, not least of which was introducing a number of the “silver generation” to, for example, Zoom calls and online shopping which they would not have dreamed of doing just a few months ago. The likes of Amazon and Apple have been on a tear, while evenings in have been a force for good for the likes of Netflix. 

“As such, the technology-laden Nasdaq index is ahead by 24% in the year to date, while there is a disproportionate effect within the S&P 500 from the big tech stocks, where the index has risen 4.5%. Both are at or nudging all-time highs. Whether technology stocks have further to run is the multi-billion-dollar question. At the moment the technology rally doesn’t show any signs of stress, but time will tell. 

“In addition, a coordinated effort by the Federal Reserve and the US government has led to trillions of dollars of monetary and fiscal stimulus, with the possibility of more to come. QE tends to underpin asset prices, and the scale of the stimulus is another reason for the positive performances being seen by US markets in general.

“On the other hand, the FTSE 100 is down 20% in the year to date and is currently friendless. Its access to technology stocks is almost non-existent. Instead, its constituents largely number sectors which have had a torrid time this year for one reason or another, such as the banks, oils and miners. 

“In addition, a previous attraction of the index was a dividend yield on average of around 4.5%, which has now largely disappeared as companies have sought to shore up their finances, with dividends being an early casualty.

“The resurgence of Brexit talks and the possibility of a no-deal is also weighing on sentiment, while sterling’s recent strength is another factor working against an index where around 70% of earnings are dollar-based.

“International institutional investors are therefore currently filing the FTSE 100 under “too difficult” at the moment and are looking for opportunities elsewhere.”

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.