The sell-off in American equities shows no sign of abating. In a single session, the so-called Big Tech giants shed $2 trillion in market capitalisation, a figure that dwarfs the GDP of most nations. The Nasdaq Composite slumped 4.3 per cent, its worst day since the pandemic panic of March 2020. Apple, Microsoft, Amazon, Alphabet and Meta all suffered double-digit percentage losses, evaporating gains built up over months of speculative frenzy.
The trigger was a cocktail of familiar poisons: hotter-than-expected US inflation data, stubbornly hawkish Federal Reserve rhetoric and a sudden realisation that interest rates may stay higher for longer. The 10-year US Treasury yield punched through 5 per cent for the first time since 2007, a level that traditionally acts as a gravity well for risk assets. When the risk-free rate offers such a return, why bother with the volatility of unprofitable tech unicorns?
Yet across the Atlantic, London’s FTSE 100 barely blinked. The index closed down a mere 0.3 per cent, a performance that looks almost heroic by comparison. This is not patriotism. This is the cold logic of index composition. The FTSE 100 is heavily weighted toward value sectors: energy, mining, financials and pharmaceuticals. These are cash-generating machines, not promises of future growth. When inflation bites, these companies can pass on costs. When rates rise, their margins hold up. Big Oil and Big Banks do not trade on price-to-sales ratios of 20. They trade on single-digit earnings multiples and pay dividends.
Consider BP and Shell. Both rose on the day, buoyed by the same inflationary pressures that crushed tech. Higher energy prices mean higher profits. Meanwhile, HSBC and Lloyds benefit from wider net interest margins. The contrast could not be starker. In New York, traders were liquidating positions in Tesla and Nvidia. In London, fund managers were rotating into Rio Tinto and GlaxoSmithKline.
This divergence raises a crucial question: Is London’s resilience a sign of maturity or a warning of incipient capital flight? The dollar has strengthened sharply against the pound, which is never a good sign for UK importers. Inflation in Britain remains sticky, with core CPI hovering above 6 per cent. The Bank of England has been raising rates with grim determination, but the lag effects have yet to fully hit mortgage holders and corporate borrowers. A recession is still on the cards.
But for now, the market is voting with its feet. The premium that investors demand to hold British equities over US Treasuries has narrowed. That suggests that some yield-seeking capital is coming back to London. After years of underperformance relative to Wall Street, value is finally being recognised. The MSCI World Value Index has outperformed its growth counterpart by a double-digit margin this year. London sits at the heart of that rotation.
Of course, the bulls should not get too complacent. The rout in US tech will eventually spill over. If the global economy tips into recession, commodity prices will fall, and London’s heavyweights will lose their shine. But for today, the City can take a small measure of satisfaction. While Silicon Valley burns, the Old World of dividends and tangible assets is proving its worth. The bottom line is simple: when the hype fades, substance matters.
