The Edge

Richard Northedge takes on corporate finance

FTSE 100 in the foothills while Dow conquers new peaks

The Dow Jones index of US share prices reached a new peak in March 2103. London shares have yet to recover to their level of the last century, however. What’s Wall Street got that the FTSE 100 hasn’t?

Both indices have had their ups and downs, but the Dow Jones has recovered much better than the London benchmark of share prices. The Dow reached 11,500 at the end of the 1990s when the bubble burst and fell by a third by 2002 as the US went into recession. But it soared to a new high of 14,198 in October 2007 before the financial crisis brought it back down to 6,550 – and it has now more than doubled again to its new 2013 record.

The FTSE 100 (INDEXFTSE:UKX) peaked at the same time in 1999 at almost 7,000, but while US shares fell by a third, the London index almost halved – even though Britain had no recession. And while Wall Street reached new highs in 2007, the UK index failed to get back to the 1990s level – yet still almost halved again afterwards.

When the Dow was hitting its new peak, the FTSE still had not recovered to the 2007 level, nevermind its 1999 zenith. London’s market has had a lost decade while America has moved on.

You can quibble over statistical methodology (the Dow comprises only 30 stocks and the wider S&P 500 is slightly slower to set new peaks) but both indices directly affect savings and pensions.

What the stock markets are reflecting are the states of the US and UK economies. Both government’s are deep in debt and both countries have unemployment levels of about 8 per cent, but US growth this year will shun the remnants of the fiscal cliff and sequestration to be around 2 per cent when Britain’s economy is not yet expanding again.

The worry is that markets look forward, and if they are doing their job properly, they are optimistic for the US and remain pessimistic for Britain.

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