During 2023, I’ve read so many headlines warning that the London market is a ‘backwater’, ‘washed up’, ‘a graveyard for investors’ and even that ‘the City is dying’. One repeated argument for these views is the FTSE 100‘s lacklustre performance against the S&P 500, its American counterpart.
US success
The enormous success of US stocks since the global financial crisis (GFC) of 2007-09 has made large fortunes for some long-term investors .
At the bottom of the 2009 market meltdown, the S&P 500 hit a low of 666 points — the fabled ‘number of the beast’ in the the Christian Bible’s Book of Revelation — on 6 March 2009.
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On Tuesday, 28 November, it closed at 4,554.89. That’s a colossal gain of 583.9% in under 15 years, which works out at a compound yearly return of 13.9%, excluding cash dividends.
Meanwhile, the FTSE 100 hit its GFC low of 3,460.7 points on 9 March 2009. On Tuesday, it closed at 7,455.24 — up 115.4% in nearly 15 years. That’s a compound yearly return of just 5.3%, also excluding dividends.
Thus, during one of the best periods in modern history for investors, the US index has absolutely trounced its UK counterpart. What about more recent times? Here’s how these indexes have performed over five timescales:
| Index | S&P 500 | FTSE 100 | Difference |
| One month | +9.3% | +1.7% | +7.6% |
| Six months | +8.3% | -0.9% | +9.2% |
| 2023 to date | +18.6% | 0.0% | +18.6% |
| One year | +15.1% | -0.8% | +15.9% |
| Five years | +65.0% | +6.8% | +58.3% |
My table clearly shows that investing in US stocks rather than UK shares has always been the right call over all periods ranging from one month to five years. Therefore, I’d be crazy to keep buying Footsie shares, right? Not necessarily.
The FTSE’s fundamentals look crazy to me
Here’s how the fundamentals of both markets stack up today:
| Index | S&P 500 | FTSE 100 |
| Earnings multiple | 20.4 | 10.9 |
| Earnings yield | 4.9% | 9.2% |
| Dividend yield | 1.6% | 4.0% |
| Dividend cover | 3.2 | 2.3 |
In historic terms, the US market looks expensive, trading as it does above long-term earnings multiples. What’s more, S&P 500 earnings have actually fallen in 2023, pushing this multiple higher. But maybe it’s worth paying a premium to buy into America’s future corporate success?
Conversely, the FTSE 100 looks incredibly cheap, both in historical and geographical terms. Alas, that’s usually been the case over the past five, 10 and 15 years. And yet the London market has repeatedly lagged behind global rivals.
Which should I buy?
As older investors (we are both 55), my wife and I use our portfolio to generate dividend income for us. We then use this passive income to support our family, or reinvest these cash rewards into more shares. Hence, it makes sense for us to have decent exposure to the dividend-rich Footsie.
That said, it’s brutally obvious that US growth stocks have thrashed UK income shares over the last 15 years. Thus, we have huge exposure to US stocks, largely through US and global tracker funds. Also, we own seven mega-cap US stocks — all of which have been stars over the past year.
In summary, the better buy between the S&P 500 and the FTSE 100 is both — for me, at least!
