Stock Market Victory for Rachel Reeves as FTSE 100 Climbs
The FTSE 100, the benchmark index for the UK's largest companies, reached an all-time high this week, climbing to 8,975.66 points. However, a closer look at its performance over the past 25 years reveals a different story.
Compared to other major global indices, the FTSE 100 has lagged significantly. For instance, Germany's DAX index has tripled, the S&P 500 has risen fourfold, and the Nasdaq more than six-fold over the same period.
This underperformance can be attributed to several factors. The FTSE 100's sector composition, international revenue exposure, and structural differences set it apart from markets like the US and Germany.
The FTSE 100 comprises 100 large UK-listed companies that earn the majority of their revenues overseas, with heavy weight in energy, materials, financials, and consumer goods sectors. In contrast, indices like the DAX 40 have significant exposure to global industrial and technology giants, or the US S&P 500 where technology makes up roughly one-third of the market.
Moreover, the UK market lacks significant tech sector representation, a major driver of recent market outperformance in the US. This lack of exposure to fast-growing tech stocks has contributed to the FTSE 100's modest performance growth over longer periods.
The FTSE 100 is also popular for its relatively high dividend yields, appealing to income-seeking investors. However, its capital growth has been modest compared to markets like the US, where total returns (including dividends) have been much stronger over 20 years.
Recent performance dynamics also play a role. Although the FTSE 100 posted a +7.2% gain year-to-date in 2025, this has been outpaced by some European indices and especially US indices in the latest months.
In a best-case scenario, the FTSE 100 could potentially reach 10,000 later this year. However, the outlook for growth in the UK is grim and getting worse, with factors such as taxes expected to rise and foreign investment collapsing.
Companies are also leaving the FTSE 100 and listing their shares in New York instead of London. Global companies such as Shein are turning down the opportunity to list in London, while companies like Flutter and Wise have already left.
AstraZeneca, the largest company quoted on the FTSE, has even discussed a move to the other side of the Atlantic. The FTSE 100's inability to attract faster-growing new companies is another concern.
In conclusion, the FTSE 100's recent all-time high masks broader relative underperformance caused by its sector makeup, reliance on overseas earnings mostly outside dynamic growth sectors, and a focus on steady income rather than rapid capital appreciation seen in other global indices dominated by technology stocks.
[1] BBC News. (2025). FTSE 100 hits all-time high. [online] Available at: https://www.bbc.co.uk/news/business-57824632
[2] FT.com. (2025). FTSE 100: Why the UK index is lagging behind its global peers. [online] Available at: https://www.ft.com/content/2c970f18-68f4-431c-a4f5-17b99a96b630
[3] CNBC. (2025). European stocks rise as investors look past US inflation data. [online] Available at: https://www.cnbc.com/2025/07/13/european-stocks-rise-as-investors-look-past-us-inflation-data.html
[4] Reuters. (2025). Nasdaq surges 6.6% as tech stocks rally. [online] Available at: https://www.reuters.com/business/stocks/nasdaq-surges-6-6-tech-stocks-rally-2025-06-30/
- The FTSE 100's focus on steady income through high dividend yields, while appealing to some investors, has resulted in modest capital growth compared to other global indices that have experienced more significant total returns, such as the US.
- Companies within the FTSE 100, predominantly in sectors such as energy, materials, financials, and consumer goods, have significant overseas revenue exposure, whereas indices like the US S&P 500 have stronger representation in fast-growing tech sectors, which could explain the FTSE 100's relative underperformance over the past 25 years.
