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Senior Market Analyst
The FTSE 100 hedge gets its real test when Wall Street turns on its own tech champions. When investors sell out of U.S. chip makers and AI-related stocks, the FTSE 100 holds its ground because the index carries very little technology exposure, which makes it a natural cushion against a U.S. tech selloff. That matters for anyone with cross-asset exposure, because a selloff that wiped out the rally following the midterm election results dragged U.S. indices sharply lower while European benchmarks barely flinched. The gap between the two shows exactly where the risk sits in a tech-led rout, and where it doesn't.
Fiona Cincotta, StoneX Senior Market Analyst, covers UK, European and U.S. equity markets alongside forex, commodities and the macro themes that connect them. That coverage gives insight into what is driving the split between U.S. tech stocks and European benchmarks such as the FTSE 100 and the DAX.
The FTSE 100 is holding up through the U.S. tech selloff because the index has little exposure to the chip makers and AI-related stocks driving the losses on Wall Street. Whereas the Nasdaq is packed with the technology names investors are dumping, the FTSE 100 leans away from that corner of the market entirely. "The FTSE has actually shown considerable resilience in recent sessions, given its components being not very tech focused," Cincotta says, and she adds that this shows the index can be a decent hedge against the U.S. selloff. For a trader sitting on heavy U.S. tech exposure, that difference in sector mix is the whole story, since an index can only fall on the stocks it actually holds. Notably, the CAC 40 and the DAX also fell far less than U.S. indices, which tells you the split runs across the Atlantic rather than stopping at London.
According to Cincotta, "there are already concerns surrounding the AI trade following earnings seasons and concerns over huge levels of investment and spending, and whether there will be timely returns on those investments." U.S. AI stocks are falling harder than European indices because political pushback on data center expansion is landing on top of those existing doubts about AI spending. Democratic victories in key states where data centers face public opposition have stirred concerns that the pace of expansion could slow, a direct blow to the companies whose growth story rests on that build-out. As a result, the rally that followed the midterm election results reversed quickly, and the selling spilled over into broader risk sentiment. European benchmarks carry far less of that AI exposure, which is why their losses stay comparatively small when the AI trade unwinds.
The divergence between U.S. tech stocks and German stocks shows up most clearly when the Nasdaq price chart is laid over the DAX. The overlay shows how far the two indices drift apart when selling concentrates in U.S. technology. On the DAX itself, the rising trend line, the 50-day and 200-day moving averages and the relative strength index show if a pullback is leaving the broader uptrend intact. Each of those signals describes the health of the trend, not where prices head next.
--- Written by Frédéric Guétin, StoneX Media Producer
--- Expert: Fiona Cincotta, StoneX Senior Market Analyst
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