The US Nasdaq index closed down by 5% on Thursday, following Wednesday’s interest rate rise.
This sell-off has left this tech-heavy index down by 22% since January, tipping it into bear market territory (defined as a 20% drop from recent highs). The US S&P 500 index is also down this year. Will the FTSE 100 be the next big stock market index to fall?
Looking at the big picture
Many UK investors are invested in big Nasdaq tech stocks such as Facebook owner Meta, Amazon, Apple and Netflix.
The Nasdaq’s sharp fall this year looks quite dramatic. But on a one-year timeframe the Nasdaq is only down by 5%. Big winners such as Tesla (up 30%) and Apple (up 20%) have helped to offset fallers such as Meta and Amazon.
Indeed, measured over five years, the Nasdaq is still a long way ahead of both the FTSE 100 and its US equivalent, the S&P 500:
| Index | Year-to-date | 1 year | 5 years |
| Nasdaq 100 | -22% | -5% | +125% |
| S&P 500 | -14% | -1% | +73% |
| FTSE 100 | -1% | +5% | 0% |
While both the main US stock indices have been going gangbusters over the last five years, the FTSE 100 has gone precisely nowhere.
That’s frustrating for me as a UK investor, but I think this gives us some useful clues about what could happen next.
US vs UK markets
It’s worth remembering that the average company valuations in the big US markets have been much higher than in the UK. Even after recent falls, that’s still true today:
| Index | Forecast P/E | Forecast div yield |
| Nasdaq 100 | 23 | 1.9% |
| S&P 500 | 18 | 2.1% |
| FTSE 100 | 14 | 3.5% |
US stocks are starting to look more reasonably priced to me, but I can still see room for further falls. One thing that worries me is that forecast earnings could end up being lower than expected. Amazon and Facebook have both recently warned of slowing growth, for example.
Here in the UK, the FTSE 100 is quite a different beast to the Nasdaq 100.
Most of the biggest lead index companies are banks, insurers and natural resources stocks. They’re reporting higher profits, benefiting from rising interest rates and high commodity prices.
Shell and BP both reported near-record quarterly profits this week, for example.
FTSE 100 slump? I’m not too worried
Looking ahead, the UK market still looks quite reasonably priced to me, compared to the US market.
I think that what happens next will depend on how the global economy performs and which sectors continue to deliver earnings growth.
High inflation and recession fears are already weighing on consumer and tech stocks. But if this situation continues, I expect these same risks to hit the price of energy stocks and miners, as demand for their products eases.
However, although I can see some risks, I do not expect the FTSE 100 to crash. Stock valuations already look reasonable to me, and most big companies seem to be in fairly good shape financially.
Indeed, I think I can see some great opportunities to buy individual shares with long-term growth potential. For this reason, I’m going to continue buying UK shares over the coming months, regardless of what happens to the FTSE 100 or the Nasdaq indices.
