The sell-off on Wall Street gathered pace overnight, with the Nasdaq Composite sliding another 2.3% as investors fled the big technology names that have powered the bull market for the past year. The S&P 500 shed 1.8%, its worst single-day performance in three months, driven by a sharp reversal in mega-cap stocks. Apple, Microsoft, and Amazon each lost more than 3%, while Nvidia, the poster child of the AI boom, tumbled 5% on fears that earnings expectations have run too far ahead of reality.
Yet across the Atlantic, London’s FTSE 100 managed to close flat, dipping just 0.1% in early trading before recovering. The divergence is telling. It speaks to a rotation out of growth and into value, out of frothy tech and into boring but reliable dividend payers. The Footsie’s heavy weighting in energy, mining, and banks provides a natural hedge against the sort of speculative frenzy that is now unwinding in New York.
But make no mistake: this is not a vote of confidence in the UK economy. It is a flight to safety. The gilt market remained calm, with the 10-year yield edging down two basis points to 4.32%, as investors sought shelter from the storm. The pound, however, took a hit, sliding to $1.25 amid fears that a global risk-off move could trigger capital outflows from emerging markets and commodity currencies.
The trigger for the sell-off appears to be a combination of factors. First, a disappointing earnings report from a major cloud provider raised questions about the sustainability of AI spending. Second, a hawkish remark from a Federal Reserve official reminded markets that interest rates are not coming down anytime soon. And third, the relentless rise in long-term US Treasury yields, now above 4.6%, is pulling money out of equities and into bonds.
London’s resilience is fragile. If the Wall Street rout spills over into a broader risk aversion, the FTSE 100 will not escape. The index’s defensive qualities can only hold for so long. Already, the domestically focused FTSE 250 has fallen 0.6%, a sign that investors are nervous about the UK’s growth prospects. The Budget next week could be a catalyst for more selling if the Chancellor delivers a spending splurge that spooks the gilt market.
For now, however, the narrative is one of divergence: the US correction continues, while London holds the line. But in a globalised market, no index is an island. The question is not whether the selling will reach our shores, but when.
