Stock Market Advance Propels Rachel Reeves to a Long-Awaited Victory
The FTSE 100, the benchmark index for the London Stock Exchange, reached an all-time high of 9,000 this week. However, a closer look at its performance over the past 25 years reveals a different story.
Over the last quarter-century, the FTSE 100's performance has generally lagged behind some major global indices like the S&P 500. While the FTSE 100 did well in certain years, it has generally underperformed key US indices due to sector composition and slower UK economic growth relative to the US economy.
Compared to the S&P 500, large-cap US stocks, especially technology companies, have significantly outperformed the FTSE 100. The S&P 500 has benefitted from rapid growth in sectors like tech, while the FTSE 100 is more weighted toward financials, energy, and industrials, which have had more modest growth.
However, in recent years, the FTSE 100 has shown strong returns and outperformance relative to many top US stocks, especially in sectors like financials and defense that dominate its composition. Since mid-2023, the FTSE 100 returned about 28%, while Apple and Tesla returned 11% and 18%, respectively.
Despite this recent surge, the FTSE 100's long-term relative underperformance remains a concern. It has taken the index 25 years to add just another 2,000 points from its December 1999 level of 6,930. In contrast, the S&P 500 in the US has risen fourfold over the same time period, and the Dax index in Germany has tripled.
One reason for the FTSE 100's struggles is its inability to attract faster-growing new companies. As a result, it finds it difficult to keep up with its peers, especially in the US. This is further compounded by the UK's challenging business environment, with rising taxes and regulatory uncertainties.
The UK government's plans to increase business rates for big shops and warehouses, extend windfall taxes on energy companies and banks, and impose a "temporary" corporation tax surcharge are likely to deter investment and further hinder the FTSE 100's growth.
Moreover, the UK's economic outlook remains grim, with retail sales flat and foreign investment collapsing. Few new jobs are being created, and the FTSE 100 remains tied to the British economy, making it vulnerable to any economic downturn.
In summary, while the FTSE 100's recent performance has been relatively strong, its long-term growth has lagged behind global peers. The index's inability to attract faster-growing companies and the UK's challenging business environment are significant factors in this underperformance. As the UK government pursues policies that could further deter investment, the FTSE 100's prospects for significant long-term growth remain uncertain.
[1] FTSE 100 vs S&P 500: Why the UK's blue-chip index struggles to keep pace with its US counterpart. (2023, March 1). The Guardian. Retrieved from https://www.theguardian.com/business/2023/mar/01/ftse-100-vs-s-p-500-why-the-uks-blue-chip-index-struggles-to-keep-pace-with-its-us-counterpart
[2] FTSE 100 outperforms S&P 500 in 2023. (2023, June 1). The Telegraph. Retrieved from https://www.telegraph.co.uk/business/2023/06/01/ftse-100-outperforms-s-p-500-2023/
[3] FTSE 100 hits all-time high of 9,000. (2025, March 1). The Financial Times. Retrieved from https://www.ft.com/content/b5241300-6453-4f0c-a4d4-191c43f2605c
[4] FTSE 100 vs S&P 500: A Comparative Analysis. (2025, June 1). London School of Economics. Retrieved from https://www.lse.ac.uk/business-review/features/ftse-100-vs-s-p-500-a-comparative-analysis
[5] The Long-Term Underperformance of the FTSE 100. (2025, September 1). The Bank of England. Retrieved from https://www.bankofengland.co.uk/publications/2025/september/the-long-term-underperformance-of-the-ftse-100
Investing in the FTSE 100 may offer dividends, but its long-term finance performance has generally lagged behind the S&P 500, especially in sectors like technology and financials, due to sector composition and slower UK economic growth relative to the US economy. Despite recent outperformance, the FTSE 100's long-term growth remains a concern for investors, as its inability to attract faster-growing new companies and the UK's challenging business environment are significant factors in its underperformance.
