On days when US technology shares tumble, UK investors are sometimes surprised to see the FTSE 100 holding steady or even rising. It is not a fluke. London’s main index is built very differently from the Nasdaq, and that difference can act as a cushion when the world’s favourite growth stocks fall out of favour.
What is in the FTSE 100
The FTSE 100 tracks the 100 largest companies listed in London. Its biggest weights include banks, oil and gas producers, miners, pharmaceutical companies, tobacco and consumer goods giants. Technology makes up only a small share. Our guide to the FTSE 100 covers its basics.
The Nasdaq 100, by contrast, is dominated by a handful of technology and internet companies. The S&P 500 also has a heavy technology weighting.
Why that matters on tech sell-off days
When investors sell technology, they often move money into areas they see as cheaper or steadier: banks, energy, healthcare and consumer staples. These are exactly the kinds of companies that make up much of the FTSE 100. So a day of rotation away from technology can actually help London.
This week offered a clear example. On Monday, the Nasdaq Composite fell more than 1 per cent while the FTSE 100 rose 0.29 per cent. Our Morning Market Brief covers how the chip sell-off spread to Asia while London held up.
Value versus growth
The FTSE 100 is often described as a value index, full of mature companies that pay dividends and trade on lower valuations. Technology indices are growth-heavy, priced for strong future profits. When investors worry about stretched valuations or rising interest rates, value can outperform growth. Our explainer on growth versus value rotation goes deeper.
The role of commodities and the pound
Because energy and mining are big parts of the index, the FTSE 100 is sensitive to oil and metal prices. If oil rises during a tech sell-off, the FTSE can benefit doubly. If commodities fall at the same time, the cushion is thinner.
The pound matters too. Many FTSE 100 companies earn most of their profits overseas, so a weaker pound boosts the value of those profits in sterling and can lift the index.
When the cushion fails
The FTSE 100 is not immune to global fear. If a sell-off turns into broad risk reduction, with investors dumping shares of all kinds, London usually falls too. Banks and miners can be hit hard when investors worry about a global slowdown. The cushion works best during rotation, not panic.
The takeaway
The make-up of an index shapes how it behaves. Understanding what you own, or what an index contains, explains why markets do not always move together and helps you judge where risks and opportunities lie.
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