Investor sentiment in the US has seen a shift in 2025, with a possible move away from “irrational exuberance” towards a more fundamental approach to portfolio allocations. This change is reflected in the recent decline in the value of tech stocks, which had been driving US indices to post-war highs. The tech sector, particularly artificial intelligence (AI) stocks, had seen a surge in investment, leading to concerns about overvaluation.

The recent turmoil in the AI industry, exemplified by the launch of the DeepSeek chatbot, has highlighted the need for a reevaluation of investment strategies in this sector. The financial investment required to compete in AI is significant, and assumptions about the sector’s winners and losers may need to be adjusted.

The ongoing trade tensions, exacerbated by tit-for-tat tariff actions, have also contributed to market uncertainty. While these disruptions may not have an immediate impact, prolonged trade conflicts could pose a significant risk to global markets. Additionally, concerns about the ballooning US debt and the dollar’s share of central banks’ foreign reserves have added to market volatility.

In contrast to the US market, UK stocks, as represented by the FTSE 100 index, have shown resilience in the face of these challenges. The FTSE 100 outperformed US indices in 2022, despite geopolitical tensions and economic concerns. The UK’s reliance on “invisible exports” rather than goods trade surplus with the US may make it less vulnerable to US tariffs.

As investors consider a potential rotation out of US stocks, the FTSE 100 offers a diverse range of lower-growth, predictable stocks that serve mature markets. While some may view these stocks as limited in growth potential, companies like Compass Group (CPG) demonstrate the opportunities for market share expansion through strategic acquisitions. The FTSE 100 remains a viable option for investors seeking stability and growth opportunities in uncertain times.

Overall, the UK market presents attractive opportunities for investors seeking relative value compared to the US market. By focusing on companies with strong fundamentals and growth potential, investors can navigate the current market uncertainties and capitalize on emerging trends.