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After a turbulent spring, stock markets seem to have regained their confidence. Currently, the FTSE 100 is 1.5% short of its all-time high, set on 3 March. Meanwhile, the S&P 500 lies 2.9% below its peak, set on 19 February.
That’s good news for shareholders who saw share prices plunge after President Trump’s ‘Liberation Day’ tariffs (2 April). At its 2025 low, the Footsie was down 15.3% from its peak, while the S&P 500 crashed 21.3% from its high.
US or UK?
The majority of my family portfolio is invested in US stocks. That’s largely to be expected, given that the American stocks account for perhaps two-thirds of global market capitalisation. Still, I keep diversifying our holdings – diversification has been described as ‘the only free lunch in finance’.
Which stock market should I buy today: US or UK? As a fundamental investor, I’ll look to the basic numbers of market valuation.
Currently, the S&P 500 trades at 23.6 trailing earnings, which is fairly high, historically. This produces an earnings yield of 4.2% — less than the 4.4% a year paid by a safe 10-year US Treasury bond.
Conversely, the FTSE 100 trades on 13.2 times historic earnings — a modest multiple. This generates an earnings yield of 7.6% — over 1.8 times the US figure.
Likewise, the US index’s dividend yield is below 1.3% a year, versus 3.6% a year for its British counterpart. Then again, US corporations generally dislike paying dividends. Instead, they prefer to reinvest profits into future growth.
Based only on these numbers, my answer is a no-brainer: buy the cheaper index — the FTSE 100. However, that’s only one part of the picture, because US companies tend to grow revenues, earnings, and cash flow much faster than UK companies do. This somewhat explains the higher stock valuations given to US firms.
Silicon value?
Summing up, this is an old investment dilemma: buy undervalued shares or go-go growth stocks? The latter approach has easily beaten the former since the global financial crisis of 2007/09. But times and trends change, so maybe value investing will be the winner over the coming decade? Who can say?
Personally, I prefer to hedge my bets by buying the best of both worlds. Therefore, my family portfolio includes many inexpensive FTSE 350 shares, plus some mega-cap S&P 500 stocks. But perhaps buying American value would be another angle?
For example, among the US mega-cap stocks known as the ‘Magnificent Seven’, I believe that Alphabet (NASDAQ: GOOG) stock offers US-style growth with UK-style value. This huge business has operations including Google search, Google Cloud, the Android operating system, Waymo self-driving, and other high-tech arms.
Alphabet is so successful in some fields that it is faces various anti-trust lawsuits to curb this domination. Meanwhile, its share price stands at $167.73, valuing this behemoth at over $2trn. But trading at 19 times earnings and offering an earnings yield of 5.3% a year, its stock looks inexpensive. There’s even a dividend yield of 0.5% a year for a bit of income (to reinvest in new shares?).
Today, Alphabet stock lies 19.6% below its 2025 high of $208.70, hit on 4 February. If things go badly on the legal front, the shares could go lower. Still, we intend to keep our stake for the long run!
