Record highs hit by the American stock market have further laid bare the gulf between Wall Street’s V-shaped recovery and the UK, which is struggling to bounce back from the pandemic.
London‘s FTSE 100 continues to flatline even as the country emerges from lockdown and the government unlocks most sections of the economy.
The blue-chip exchange is down 19 per cent on last year – a stark difference from the three major indices on the other side of the Atlantic which have all rallied.
The Nasdaq is up 25 per cent, the S&P 500 is up 4.9 per cent, and the Dow Jones is down 2.7 per cent from last year.
Such sharp contrast between the two countries has been attributed to the wealth of Wall Street’s technology firms, which have reaped the rewards of the boom in social media and streaming services during lockdown.
But economists have warned against translating stock market fortunes into the performance of the ‘real economy’, where many ordinary citizens are suffering hardship.
Explaining the huge gap between the US and UK markets, Richard Hunter, head of markets at Interactive Investor, highlighted the make-up of companies listed.
He told MailOnline: ‘The Nasdaq is tech-heavy and is recovering their March losses with the likes of Amazon benefiting from lockdown, as have Netflix, as have Apple.
‘The lockdown has brought about the next level of tech because the so-called ‘silver generation’ have been forced to become more tech savvy.’
He said the Nasdaq’s mammoth gains have spilled over on to the S&P, because the tech companies are constituents and have garnered investment.
The S&P, which is generally viewed as the most accurate reflection of corporate America, last night closed at a record high and sealed one of the most emphatic recoveries in history.
It yesterday rose by 7.79 points to finish at 3,389.78 – sneaking past the New York-based firm’s previous record of 3,386.15.
The FTSE 100 nosedived as the UK was plunged into lockdown in March and has not recovered its losses
Such sharp contrast between the two countries has been attributed to the wealth of Wall Street’s technology firms such as Amazon, which have reaped the rewards of the boom in social media and streaming services during lockdown
The five largest stocks in the S&P are all tech companies – Amazon, Google’s owners Alphabet, Apple, Microsoft and Facebook – and combined comprise a quarter of the index’s recovery since March when selling was most rife.
Yet in London, the lack of big technology companies has left the stock market relying on old-world industries which make up the FTSE 100.
Mr Hunter added: ‘There’s next to no tech in the FTSE so that’s one reason [the market is not performing], they’ve been unable to capitalise on the tech boom.
‘The make-up has got a large emphasis on oil majors, mining and banking, which have suffered during lockdown.’
Oil majors Royal Dutch Shell and BP and banks such as HSBC and Barclays feature in the FTSE 100’s top 10.
While stressing the importance of tech companies as a catalyst for V-shaped recovery, experts also pointed to the differing rescues measures from governments.
Mr Hunter said that stimulus packages from Washington had made a ‘big time’ difference in reviving Wall Street.
The trading floor of the New York Stock Exchange: US markets have rallied and recovered the losses made in the pandemic
‘The Bank of England has done some QE (Quantitative Easing) but it’s not on the scale as the States, where the Federal government has poured trillions of dollars in fiscal stimulus,’ he said.
But although the UK market have failed to replicate the rallies of the US, economists have cautioned against assuming the fortunes of the stocks are a reliable barometer of the ‘real economy’.
Brad Neuman, director of market strategy for fund manager Alger, told the Financial Times: ‘Wall Street isn’t a mirror of Main Street.
‘The stock market has a much smaller weighting to the areas of the economy that have been hurt the most, like malls, hotels and airlines.’
His assessment was echoed by Mr Hunter, who told MailOnline: ‘In America the phenomenon is known as Wall Street vs Main Street.
‘It could be that there’s a big divide, there’s still an unemployment problem in the States.
‘The divide will also be even more pronounced in the States, given all the tech billionaires.’
In the UK, he said the winding down of the furlough scheme could also drive unemployment.
To revive the fortune’s of the FTSE 100, the economist said the country would need a ‘positive catalyst’ to springboard it out of the financial doldrums, such as a Brexit deal.
He said: ‘Brexit is starting to rear its head again as at the end of the year we may leave without a deal.’
And he said the US market’s recovery could be derailed by the events such as the deepening of the trade war with China and the November General Election.