The FTSE 100 and the S&P 500 indexes are going in opposite directions at the moment. While the latter’s hit new all-time highs this week, the former’s falling rapidly and is currently down 4%-5% from its highs.

So what’s going on here? Let’s take a look at what’s driving this divergence in performance.

Bond yields are hurting the FTSE 100

The main factor behind the performance gap is rising bond yields. They are impacting the markets in a number of ways.

For the FTSE 100, rising bond yields are a problem because they will negatively impact a range of stocks including:

• Banks: higher short-term yields mean those such as Lloyds and Barclays are going to have to pay out more interest to customers, therefore net interest income margins could come under pressure.
• Insurers and investment managers: when bond yields rise, prices fall, meaning companies such as Legal and General and M&G are looking at declines in the value of their fixed-income holdings.
• Debt-heavy businesses: companies with high levels of debt including BT and Vodafone are potentially looking at an increase in borrowing costs and therefore lower profits.
• Dividend stocks: higher bond yields create more income alternatives for investors, reducing the appeal of dividend stocks such as National Grid and Unilever.

Overall, higher bond yields are going to be a major headwind for the FTSE 100. Many of its largest holdings fit into one or more of the categories I listed above.

Big Tech’s the new safety trade

Now, the S&P 500 holds all of these types of stocks too. But there’s a key difference between the two indexes and that’s the S&P 500’s largest holdings are mega-cap (Mag 7) tech businesses such as Apple, Nvidia, and Microsoft.

These businesses aren’t likely to be impacted much by rising bond yields. Most have rock-solid balance sheets with little debt and business models that can still work in a higher-rate environment.

Additionally, many investors today view these stocks as ‘defensive’ due to their strong cash flows and robust balance sheets. And they gravitate towards them whenever there’s economic uncertainty.

Put all this together and it’s easy to see why the S&P 500’s making new highs at present. The Mag 7 names are driving the index higher.

Are there opportunities in the FTSE 100 today?

Now, this is obviously frustrating for FTSE 100 investors. However, the good news is that with the index well off its highs, lots of interesting opportunities are beginning to emerge.

One stock that’s starting to look quite attractive to me is HSBC (LSE: HSBA). Its share price is down almost 15%.

After that fall, the stock’s looking cheap – the forward-looking price-to-earnings (P/E) ratio using the 2027 earnings forecast is below 10. That’s good value for a global bank with operations across retail and commercial banking, investment banking, trading, and wealth management.

The share price weakness has also created a nice income opportunity. With analysts expecting a dividend payout of 94.5 cents per share for 2027, the yield is above 5%.

Now as I said above, rising yields can be a challenge for banks. So there are risks here. I like the risk/reward proposition on offer at present however. I believe this stock’s worth considering as an income and growth play.

Should you invest £5,000 in HSBC Holdings right now?

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And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if HSBC Holdings made the list?

Edward Sheldon owns shares in Apple, Nvidia, and Microsoft.