UK Stocks Outperforming US: 2025 Drivers and 2026 Catalysts

As of December 22, 2025, the UK FTSE 100 index delivered a 20.71% price return, outperforming the US S&P 500’s 16.52% by 4.19 percentage points[0]. When accounting for dividends, the FTSE 100’s total return advantage widened to approximately 6-8 percentage points due to its historically higher dividend yield range (3.5-4.5% annually vs. the S&P 500’s 1.5-2.5%)[0][2]. The outperformance can be attributed to two core fundamental factors:

1. Valuation attractiveness
   : The FTSE 100’s single-digit P/E ratios made it a compelling value proposition compared to more highly valued US equities[1].
2. Dividend yield premium
   : With FTSE 100 dividends set to exceed £80bn in 2025[2], income-focused investors were drawn to the index’s consistent and higher dividend payouts.

Looking ahead to 2026, several catalysts could sustain UK stocks’ momentum:

1. Continued dividend growth
   : Ongoing projections indicate sustained dividend payouts from FTSE 100 stocks[2].
2. Valuation re-rating
   : Undervalued FTSE 100 stocks may attract international investors, closing the valuation gap with US peers[1].
3. Positive market sentiment
   : Strategist bullishness, which has historically preceded strong European stock performance[4], could continue to drive investor interest[3][4].

A critical cross-domain insight is the role of dividend income in amplifying the FTSE 100’s outperformance, making it particularly attractive to long-term and income-seeking international investors. Additionally, the valuation gap between UK and US equities remains a persistent driver, suggesting potential for further upside if the gap narrows.

• Continued dividend growth from FTSE 100 stocks, supported by robust payout projections[2].
• Valuation re-rating as global investors rotate toward undervalued markets[1].

• Global economic uncertainty that could impact cyclical sectors in the FTSE 100.
• Fluctuations in energy prices, affecting the index’s significant energy sector weight.
• Changes in interest rates that could alter the attractiveness of dividend-paying stocks.

The UK FTSE 100 outperformed the US S&P 500 in 2025 (as of Dec 22) due to low single-digit P/E ratios and a high dividend yield premium[0][1][2]. For 2026, continued dividend growth, valuation re-rating, and positive market sentiment are key catalysts for sustaining this momentum[3][4].