The S&P 500 took a nosedive yesterday, shedding 2.1% as the tech sector buckled under the weight of mounting antitrust concerns and a profit warning from a major Silicon Valley bellwether. The Nasdaq fared even worse, sliding 2.8% into correction territory. Yet across the pond, the FTSE 100 eked out a 0.3% gain, closing at 7,642. London’s resilience, it appears, lies in its unfashionable reliance on value stocks and commodities.
Let us be clear: this is not a systemic crisis. It is a rotation. The same capital flight that hammered US tech is finding a haven in London’s steady-eddies: BP, Shell, and the miners. When traders panic, they dump the high-multiple darlings and park cash in cash-generating behemoths. That is precisely what happened yesterday.
But don’t mistake short-term noise for a trend. The real story is the yield curve. The 10-year gilt yield hovered at 4.12%, while its US counterpart fell to 4.02%. That narrowing spread is a warning. Sterling crept higher to $1.27, which will do no favours for exporters, but the market is pricing in a more hawkish Bank of England. Meanwhile, the Bank of Japan’s dovish stance continues to suck liquidity out of emerging markets, but London’s old boys are barely flinching.
Why? Because the UK is a net importer of capital, and when the US sneezes, London catches a cold only if the dollar collapses. That is not happening. The dollar index, while off its highs, remains elevated. The real risk is inflation stickiness. UK CPI is still above 3%, and the market is now pricing in two rate cuts for 2024, down from four just a month ago. If the Fed cuts faster than the BoE, sterling could rally further, squeezing UK companies with dollar-denominated debt.
But for now, the City is shrugging off the Silicon Valley tremors. The FTSE 250, a better gauge of domestic sentiment, rose 0.5%. The cyclical nature of the UK market is its defence: banks, energy, and miners do not care about the next AI breakthrough. They care about the copper price, the Brent crude curve, and the net interest margin. And those are all looking reasonably healthy.
Investors should not cheer too loudly. The divergence between US and UK equities will not persist indefinitely. If the US economy stumbles into recession, the FTSE 100 will catch up on the downside. But for today, the bottom line is this: the market is rewarding fiscal sobriety and relative value. That is a cold comfort for those holding Nvidia and Tesla, but a warm one for the prudent investor.
Scepticism remains my default position. Central banks are walking a tightrope between inflation and recession, and one wrong move will send yields screaming higher. But for now, London is proving its worth as a safe harbour in the storm.
