Has the overhyped S&P 500 had its day?

Like most investors, Harvey Jones has done very well out of his exposure to the S&P 500. But now he thinks FTSE 100 stocks could give US shares a run for their money.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

For the past decade, the S&P 500 has been the undisputed king of global stock markets. Fuelled by the meteoric rise of US tech giants such as Apple, Microsoft and Nvidia, the index has delivered breathtaking returns. But is its reign coming to an end? 

The US market is expensive, disruptive threats are emerging and now we have a potential trade war on our hands.

The S&P 500 trades at a cyclically adjusted Shiller price-to-earnings (P/E) ratio of just over 38. That’s more than double its long-term average of about 16. It’s only been higher once before – during the dotcom boom in 1999.

Can the US stock market really flop?

High valuations aren’t always a problem. Investors are happy to pay a premium for companies with strong growth prospects. 

But it does leave less room for error. If corporate earnings disappoint or growth slows, we could see a sharp correction.

Then there’s the AI story, which has lifted the US rally to the next level. ChatGPT and other generative AI tools cemented the view that the US would dominate this transformative technology.

Then China’s DeepSeek rocked up. It appears able to a similar job for a fraction of the price.

DeepSeek will either undercut US mega-caps like Nvidia, or boost demand and power them even higher. As yet we don’t know. 

Then there’s politics (isn’t there always). President Donald Trump’s tariffs could potentially trigger a global trade war.

Many of the S&P 500’s biggest firms rely heavily on international sales. If Trump’s targets retaliate, their earnings could take a hit.

One possibility is that investors start looking beyond the S&P 500 for opportunities. Enter the FTSE 100.

The UK’s flagship index has been overshadowed by its US counterpart, but does have distinct advantages. First, it’s cheap, trading at around 15 times earnings. That offers some risk protection if markets turn sour, although there’s no guarantee it won’t fall as well.

The FTSE 100 could now be a winner

Second, the FTSE 100 is packed with high-quality dividend shares. Companies like AstraZeneca, Shell and Unilever have a long history of rewarding shareholders with steady, reliable payouts.

Global asset manager Schroders (LSE: SDR) often flies under the radar but is worth considering, I feel. Its shares have struggled lately, falling 13% over 12 months and 35% over five years. Yet they’ve now jumped 10% in the last month.

Schroders has a stellar trailing yield of just over 6%. Its dividends will look even more attractive as UK interest rates fall and yields on cash and bonds slide. And it still looks good value with a P/E of around 14 times earnings.

It does face one big threat. With a hefty £777bn of net assets under management, it has good reason to fear a trade war. Those assets could take a beating if things turn nasty.

The UK is facing its own challenges, from sluggish growth to persistent inflation. But as the S&P 500 wobbles, more investors may consider diversifying into defensive, income-paying UK stocks.

The US market isn’t doomed, but investors may tread more carefully. Has the S&P 500 had its day? Maybe not, but its glory days could be over for now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has positions in Nvidia and Unilever. The Motley Fool UK has recommended Apple, AstraZeneca Plc, Microsoft, Nvidia, Schroders Plc, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

2 UK shares that could soar if interest rates sprint lower!

The Bank of England's latest meeting has fed speculation of swingeing interest rate cuts. I think these UK shares could…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

My favourite FTSE dividend stock just jumped 17%! So why am I sad?

This investor has mixed feelings today as a quality dividend stock from the FTSE 250 surged higher in his portfolio.…

Read more »

Investing Articles

Here’s why AstraZeneca stock jumped nearly 6% in the FTSE 100 today

FTSE 100 heavyweight AstraZeneca helped propel the blue-chip index to a record high today. Here's what investors were cheering.

Read more »

Closeup of "interest rates" text in a newspaper
Investing Articles

Interest rates fall again! Here are 3 FTSE dividend growth shares to consider buying

As interest on cash savings becomes increasingly less attractive, Paul Summers has been looking at dividend growth shares for passive…

Read more »

Investing Articles

Up 10% today, I think this FTSE 250 growth share could continue to surge!

Babcock International's flying after upgrading its full-year forecasts. I think the FTSE 250 defence share might just be getting started.

Read more »

Investing Articles

The AstraZeneca share price jumps 5% on today’s strong results – but is it too expensive?

Harvey Jones hails the brilliant long-term performance of the AstraZeneca share price, but wonders whether the FTSE 100's biggest company…

Read more »

Investing Articles

Is this my chance to buy Alphabet shares?

A big step up in AI spending at Google has investors nervous, but has it created an opportunity to buy…

Read more »

Senior woman potting plant in garden at home
Investing Articles

£10k in savings? Here’s how an investor could aim for a monthly second income of £1,200

Mark David Hartley considers how investors could build towards an early retirement plan with a second income from a portfolio…

Read more »