Just been looking at the UK market setup this year and honestly it's pretty interesting how things are shifting. The FTSE 100 is up 7.69% so far in 2026 while the S&P 500 is barely holding ground, down about 0.24%. Over the past year though, the UK index climbed 22.75% versus 12.16% for the S&P 500. That's a pretty notable divergence.

What's driving this? Honestly, a lot of it comes down to the AI selloff and geopolitical tension that's been hammering the US market. The S&P 500 is massively concentrated in tech—we're talking serious concentration risk there. Meanwhile, the FTSE 100 is structured completely different. Banks, mining stocks, minimal big tech exposure. That's actually working in its favor right now.

Here's the thing that caught my attention: UK large caps are trading at roughly a 40% valuation discount to US equities. That's pretty significant. UK bank valuations look compelling compared to American peers, and the mining majors are benefiting from solid precious metals prices and rising copper demand.

On the economic side, the UK momentum is building. February's composite PMI hit 53.9, strongest since April 2024. Retail sales posted their best annual gain in almost four years in January—volumes up 4.5% year over year. The budget surplus came in at 30.4 billion pounds in January. These are solid numbers.

But here's what really matters for investors: inflation just eased to 3.0% in January, down from 3.4% in December. That's the lowest since March 2025. Markets are now pricing in roughly 90% probability of a Bank of England rate cut in March, with another move likely later in the year. That kind of easing environment typically supports equity valuations.

If you're thinking about adding UK ETF exposure, there are several angles to consider. Pure-play UK ETF options include iShares MSCI United Kingdom, Franklin FTSE United Kingdom, and First Trust United Kingdom AlphaDEX. If you want broader diversification with UK exposure, you could look at iShares Core MSCI Europe (23.15% UK weighting), Vanguard FTSE Europe (23.20% UK), or iShares MSCI Europe Small-Cap (28.37% UK). There's also iShares MSCI Global Metals & Mining if you want to play the mining angle specifically.

The setup feels like a legitimate rotation opportunity away from the concentrated tech risk in the US. Whether it plays out depends on how the rate cut cycle develops and whether the economic momentum holds. Worth monitoring if you're rebalancing right now.