The FTSE 100 was weaker on Friday despite the S&P 500 entering a bull market overnight in US trade.
The FTSE 100 outperformed the S&P 500 in 2022 as the US index tanked, but the S&P 500 has left the FTSE 100 in the dust in 2023.
US stocks have been led higher by technology growth stocks this year, while the FTSE 100’s defensive attributes have held London’s leading index steady just below all-time highs.
“The tech bulls may have come out to play, with US stocks higher, but it hasn’t yet spilled over into a stronger performance for the FTSE 100 which has opened pretty flat, as eyes stay fixed on gloomier prospects for global growth,” said Matt Britzman, equity analyst at Hargreaves Lansdown.
“A rate hike in two weeks is now pretty well priced in, fuelled by what’s happened in Canada and Australia in the past few days. That pushed the pound up nearly 1%, adding more pressure to the FTSE 100, which relies heavily on overseas income.
Britzman continued to explain that although US stocks have entered a bull market, the US economic picture is starting to show signs of weakness.
“The S&P 500 rallied on Thursday to end the day in a new bull market, up 20% from levels seen back in October 2022. The S&P 500 added 0.6%, with the tech-heavy Nasdaq 100 up 1.3% as a familiar story played out. Markets jostled with weekly US jobs data that showed unemployment on the rise.”
US recession?
Many commentators predict a US recession later in the year, suggesting the bull market in US stocks may be short-lived.
S&P 500 futures were already pointing to a lower open on Friday.
“The key question is what happens next. With plenty of signals suggesting we might see a recession soon, investors will be asking themselves if they should bank recent gains in US stocks or stay put and hope any economic downturn is only shallow and quick to pass,” said Russ Mould, investment director at AJ Bell.
“What might persuade investors to take a different course of action? Valuations are looking a bit rich and there is a risk that artificial intelligence becomes a bubble that’s waiting to burst. Savvy investors might think it is worth cashing in gains before the market turns. However, if inflation starts to become less sticky and the Fed decides it doesn’t need to keep raising interest rates, there is the possibility that markets can keep pushing higher, so why not enjoy the ride?”
FTSE 100 movers
Croda was the FTSE 100’s top faller after saying sales volumes fell in early 2023 due to destocking by customers.
Ocado was the top riser as investors continued to pick the stock up after the premium food retailer avoided demotion from the FTSE 100.