After years of mixed sentiment and cautious optimism, the FTSE 100 has finally delivered the kind of headline investors notice. In July 2025, the UK’s blue-chip index crossed 9,000 for the first time and has subsequently pushed on, breaching 9,300 in August. But what does this really mean? After all, the index hit an all-time high of 6,930 on 30th December 1999, before essentially trading sideways for the next 23 years, only gaining traction again since 2023.
So, how did we get here and what does this mean for investors navigating the next phase of the market cycle?
From pandemic lows to record highs
During the pandemic in March 2020, the index briefly sank just below 5,000, completing a dire 20-year performance. With all indices it is always important to understand the underlying sector constituents and/or dominance of a few large companies, as concentrations can enhance or hamper performance. As seen in the table below, it is notable that the FTSE 100 was hampered by its heavy exposure to cyclical sectors like financials, industrials, and energy, now constituting 48% of the index. Banks had a protracted poor performance following the global financial crisis in 2008. The FTSE 100’s poor performance was then compounded by ongoing uncertainty around Brexit and the UK’s recovery path, causing international investors to repatriate funds away from the UK market.
This is starkly reflected by the UK falling from 9% of the MSCI World in 2000 to the current 3.6% but also explained by the US weighting increasing from 47% to 70% due to the dominance of US technology companies, reducing the attraction of most other global markets.
However, since pandemic lows, the FTSE 100 index has staged a strong rally to current highs, climbing over 80%, although still only 30% above the 31st December 1999 high!
What’s driving the rally?
The reasons behind the FTSE 100’s rise are mainly about improving global investor sentiment, political stability (although it may not feel like it) and the mix of banks, industrials and oil becoming a tailwind rather than a multi-year headwind. UK equities have long been seen as ‘cheap’ relative to global peers, although as all investors know cheap investments can stay cheap for a long time, until there are catalysts. It now feels there are several catalysts potentially in play…
Valuation appeal leading to overseas buyers
At the start of 2024, the FTSE 100 traded at a forward price-to-earnings ratio of just 10–11x, well below the S&P 500. As international investors have grown more cautious about US technology valuations and political risk, they have started to rotate into more reasonably priced markets, including the UK and Europe. This is illustrated by the significant amount of UK takeovers increasing from an average of nearly £100 billion a year since 2021 to £74 billion already in H1 2025 - a massive amount bearing in mind the total value of the FTSE 100 is £2.1 trillion. This compares to the £3.3 trillion value of Nvidia, currently the world’s largest company by market capitalisation.
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Global earnings of the FTSE 100
Roughly three-quarters of FTSE 100 revenues come from outside the UK. This means modest economic growth in the UK is less relevant with FTSE 100 companies being globally diversified and simply representing better value versus equivalent companies trading on other exchanges, in particular the S&P 500. Recently, FTSE industrials like Rolls-Royce and BAE Systems, with 90% and 85% of earnings outside the UK respectively, have soared on the back of rising geopolitical tensions and the UK’s renewed defence commitments.
Political stability and policy tailwinds
Following the erratic tenure of the Conservatives, Labour’s early steps to signal economic stability via a commitment to fiscal discipline and a pro-growth strategy have improved sentiment. Meanwhile, moderating inflation and weakening economic growth has allowed the Bank of England to continue cutting interest rates from a peak of 5.25% to 4% following the recent August cut, supporting certain rate-sensitive sectors and encouraging further investment across UK assets.
Recent trade deals
The UK’s modest trade surplus with the US enabled Starmer to secure an attractive 10% baseline tariff, which is the lowest available. This compares to Europe’s 15% tariff which provides the UK with a competitive advantage in the US. The UK also secured a free trade deal with India, now the world’s 4th largest economy, now equal with Japan (on a GDP basis).
Attractive cash yield
With the dominance of value sectors, the FTSE 100 offers an attractive running yield of around 3.5% plus the boost of share buybacks meaning a total cash yield of around 5.5%. The yield has a big effect on FTSE 100 returns, for example the index rose just 8.8% over the 20-year period from 30th December 1999 highs, but 112% on a total return basis.
With global investors reassessing risk, attractive valuations and higher dividends are making the FTSE 100 harder than ever to ignore.
Will the UK rally continue or will global investors ‘Return to Form’
With US equity markets performing poorly in Q1 but recently staging a significant rally, will the FTSE 100’s strong performance continue or will global investors simply ’return to form’, with the US continuing to dominate global markets, given over 30% of the S&P 500 is represented by technology?
At TMGA, we believe the answer lies not in timing the market or index, but in understanding the index components and areas of concentration. UK investors often overlook their home index, but with the FTSE 100 comprising global heavyweights in financials, consumer staples, industrials and energy, it remains a key portfolio pillar for income, resilience, and long-term capital growth. Although the US has staged an impressive rally from April lows, the strong relative performance of both the UK and Europe has shown how quickly a rotation can take hold.
The FTSE 100 may not be the most glamorous index in global markets, given its minimal 1% exposure to technology, but with US valuations once again looking stretched, global investors are finally recognising the value of diversifying elevated US exposure where attractive relative valuations, higher dividends and a more tariff-friendly environment might be too hard to ignore.
