It’s early days, but the FTSE 100 has made a very strong start to 2025. The index is up 6.2% so far this year, which is comfortably better than the 3.4% the S&P 500 has achieved.
Despite this, UK stocks still trade at lower price-to-earnings (P/E) multiples than their US counterparts. So is this the time for investors to look at buying FTSE 100 shares?
Interest rates
A big reason the UK’s been the place to be for investors in 2025 has been interest rates. The Bank of England (BoE) has been bringing down interest rates, while the Federal Reserve hasn’t.
Furthermore, this looks set to continue. At the last Monetary Policy Committee meeting, two of the seven members voted to reduce rates by 0.5%, rather than the 0.25% cut that materialised.
Across the Atlantic, the Federal Reserve’s indicated that investors shouldn’t expect rate cuts in the near future. So the outlook for the S&P 500 might be less promising.
This however, is only one part of the equation. The reason the BoE’s cutting rates is the economy isn’t growing – the latest data indicates that GDP is stagnant.
The US doesn’t have this problem – its latest GDP growth figure is 2.3%. But inflation across the Atlantic is currently at 3%, which is higher than the 2.5% the UK is dealing with.
In both cases, there’s scope for the situation to get worse. So the question is what investors should do to get themselves in the best position.
Buying stocks
When it comes to investing in stocks, I think the most important thing over the long term is the quality of the underlying business. That’s true regardless of which side of the Atlantic I’m looking.
The future might involve inflation, a recession, neither, or both. But I can’t think of a situation where I’d prefer to own shares in a low-quality business over a high-quality one.
A good example is Howden Joinery Group (LSE:HWDN). I’m not saying the business is immune to the threat of a recession – it isn’t – and that’s a risk investors shouldn’t ignore.
The company can’t do much about GDP growth, but it does a good job of managing the things it can control. And I think the result is a business that has a very strong competitive position.
The main thing that stands out to me about the firm is its cost structure. Selling exclusively to trade means it can operate out of warehouses, which cost less to rent than retail showrooms.
That puts Howden in a position to charge customers less than its competitors while still maintaining wider margins. As I see it, that’s a powerful combination that means the stock’s worth considering.
Long-term investing
I think a key reason why the FTSE 100 has been outperforming the S&P 500 (so far) in 2025 is the outlook for interest rates is much more positive. But things are more complicated than this.
In my view, the best way to bypass these complications is to focus on buying shares in quality companies. And these exist in the UK as well as in the US.
