This year in the US, the AI bull market has pushed stock prices to new highs. However, the country’s main indexes have outperformed UK stocks so far in 2025. Despite political and economic uncertainty, London’s benchmark FTSE 100 index is up more than 21.1% since the start of the year, outpacing the tech-heavy Nasdaq Composite Index (20.7%), the best-performing Wall Street average. Meanwhile, the S&P 500 has followed suit, up 16.2% for the year. Russ Mould, investment director at AJ Bell, argued in a Dec. 15 note that the FTSE 100 index could hit new highs in 2026 after setting multiple record prices throughout this year. The current all-time high is 9,930.09 points set on November 12th. FTSE year-to-date line FTSE 100 Mold said higher corporate profits, generous cash returns to shareholders and some M&A activity have lifted the FTSE 100 index this year, helped by lower interest rates. He said: “All else being equal, the omens are very good at the moment, with analysts forecasting a 14% rise in FTSE profits in 2026, and the benefits of higher dividends and continued share buybacks could further boost total returns for UK equities.” Mold said the index captures both global growth and inflation well because it is packed with business cycles, commodity prices and financials, and “underneath that is the support for yields from utilities and consumer staples.” “Above all, analysts are starting to raise their expectations for 2026 and 2027, in sharp contrast to the pattern for much of the past few years, and if this momentum continues, it could provide further momentum to the FTSE 100 and the wider UK stock market over the next 12 months.” Chris Rush, investment manager at Kingswood Group’s IBOSS, told CNBC that he sees UK stocks as having upside, but suggested they should form part of a broader portfolio. “Despite this year’s strong performance, UK equities remain relatively unloved and represent attractive value when compared to historical averages,” he said in an email. “Taken together, these factors suggest that the case for UK assets in diversified portfolios remains intact amid heightened uncertainty over the coming year.”While there is some optimism for the UK market, JPMorgan’s World and European Equities Head of Formula Strategy Mislav Matejka argued that given the FTSE 100 is a highly liquid, defensive quality market, UK stocks often do well because traders are “very bearish about everything else”. The UK market was one of many indices outside of Wall Street to benefit from broad diversification away from the US earlier this year. These deals, made in the wake of President Donald Trump’s so-called “Emancipation Day” tariffs, have been called “Sell America,” “Anywhere But America (ABUSA),” and even the “Trump Dump.” Rotation appears to be slowing towards the end of the year, with outperformance in some international markets diminishing and US stocks hitting record highs. Mr Matejka told a roundtable in London earlier this month that many overseas investors he had spoken to recently were “very uncomfortable” with British stocks. “The concerns are about growth, taxes and politics,” he said. Looking ahead to 2026, Matejka painted a mixed picture for the UK market. “It’s still very cheap,” he added. “It makes sense to be constructive on the UK, but I don’t consider it overweight because there is no compelling angle. There is no clear growth acceleration.” Speaking before the Bank of England cut its key interest rate on December 18, Mr Matejka said one way investors could invest in UK equities was by allocating to interest rate-sensitive names, with up to four further rate cuts expected next year. Shares in housebuilders and financial services companies rose modestly following the Bank of England’s decision on Thursday. But Matejka insisted the UK’s outlook lacked the “transformation” and growth catalysts of rival markets such as Germany and China. “In absolute terms, I think[the FTSE 100]will rise 5-10% next year, because I think most markets will rise. But I’m not overweight just because there’s no fundamental story,” he said.
