As August draws to a close, the gap between UK and US stock markets has become harder to ignore. The S&P 500 continues its climb, supported by booming tech stocks and expectations of interest rate cuts from the Federal Reserve.
By contrast, the FTSE 100 remains subdued. UK-listed companies are still delivering profits, yet investors are slow to respond. For those investing from Britain, the divide raises a sharper question: which market still offers true value?
In This Article
UK vs US Equities – Where’s the Better Value?
Overview of UK and US Equity Markets
UK equities have often been seen as a hunting ground for undervalued shares. It is heavily weighted towards established sectors such as finance, energy, and consumer goods. Many firms listed in London operate on a global scale, but their valuations still reflect the mood of domestic investors.
On the other side of the Atlantic, US markets are fuelled by an appetite for expansion. Large-cap technology firms hold the highest weightings in the S&P 500 index. Their ability to scale, access capital, and stay ahead in innovation has made them a central part of global portfolios. Despite a correction in 2022, US stocks have rebounded strongly, helped by resilient household spending and investor confidence in the long-term potential of artificial intelligence.
UK investors now find themselves facing a familiar tension. US shares may offer more growth, but domestic stocks are looking increasingly overlooked.
Valuation Metrics
The numbers make the contrast clear. Towards the end of August, the FTSE 100’s forward P/E ratio hovered around 11. The S&P 500 stood at more than double that figure, close to 23. This valuation gap has widened in recent years, especially following the pandemic.
Part of the difference comes down to company behaviour. American companies typically reinvest earnings in scaling operations, rather than distributing them as dividends. UK-listed firms, on the other hand, focus more on shareholder payouts and must offer higher yields to attract attention.
Not all market watchers believe this valuation gap is justified. Several London-based managers have noted that many FTSE 100 companies generate the majority of their revenue abroad. These earnings are often denominated in stronger currencies, such as the US dollar or the euro. As a result, share prices may reflect cautious sentiment more than real business performance.
For investors seeking income, UK equities remain attractive. Dividend yields above 4% are common, far outpacing typical returns on US stocks. Even with bond yields rising, that remains a significant draw.
Growth Potential
The US continues to lead when it comes to innovation. Its companies dominate in artificial intelligence, cloud technology, and biotech. Deep capital markets and strong demand from institutional investors provide a solid base for expansion.
That strength draws in global funds. Index trackers and pension schemes are consistently adding to US holdings, reinforcing valuations at the top end. The prospect of Federal Reserve rate cuts later this year is also likely to support further gains.
The UK economy tells a different story. While inflation has eased, it is still above the Bank of England’s target. Interest rates remain at their highest level in 15 years, with borrowing costs weighing on consumers and businesses. Mortgage payments have climbed, and wage growth is only now starting to recover. These pressures have been a drag on the domestic-facing FTSE 250.
However, there is potential for change. If rates begin to fall in early 2026, UK mid-cap stocks could see a strong recovery. Some analysts argue that the market has already factored in a potential downturn that may not fully materialise.
Performance History
Over the past 15 years, US stocks have comfortably outpaced their UK counterparts. A £10,000 investment in a US tracker back in 2010 would now be worth over £35,000. In the FTSE 100, that same amount might have grown to just under £20,000, depending on fees and currency impact.
Shorter-term results, however, show a more mixed picture. In 2022, UK stocks proved more resilient as rising rates hit tech-heavy US indices. In early 2023, the FTSE 100 outperformed briefly, driven by strong returns in banking and energy.
Over the long run, the US has delivered stronger capital growth. But with valuations now stretched, some investors are starting to question whether this level of outperformance can continue.
Current Market Sentiment
Right now, sentiment differs sharply between the two regions. In the US, optimism is widespread. AI and automation are expected to power the next wave of growth. Inflation appears contained, and the Fed is expected to begin loosening policy before the end of the year.
UK investors are more cautious. Fund outflows have slowed but not reversed. Many pension funds are still underweight UK equities. Retail interest has picked up slightly, but remains below historic levels. At the same time, foreign buyers are taking note. Several UK-listed firms have been snapped up in recent months, with buyers citing attractive valuations and a weak pound.
Some see this as the beginning of a slow re-rating. But much depends on whether the Bank of England signals a clear turn in policy, and whether political uncertainty heading into the likely 2026 general election keeps investors on the sidelines.
Which Offers Better Value Today?
On traditional metrics, the UK market is hard to ignore. Share prices remain low, dividend yields are high, and many companies are generating strong earnings. But markets don’t move on value alone. Investor sentiment and future growth expectations still steer the flow of capital.
The US offers more momentum and remains the global centre of innovation. That doesn’t mean UK stocks are without appeal. For those building diversified portfolios, a renewed focus on domestic opportunities could be timely.
The UK market may not grab headlines like Wall Street. But for long-term investors with patience, this could be the right moment to look more closely at what’s already on their doorstep.
