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Investing
WeekWatch: Rising markets - are they here to stay:
21 July 2025
8 minutes
Stock Take
Rising markets – are they here to stay?
Last week saw the FTSE 100 break the 9,000 barrier – reaching a new record high. Meanwhile, US markets continue to soar following a low seen in early April, and investors are returning to US assets.
It’s fair to say 2025 has been a rollercoaster for markets. While current trajectories are upwards, can investors expect the highs to continue? Or is a correction on the cards?
Has the UK turned a corner?
On Tuesday of last week the FTSE100 reached a record high of 9,016. It has since fallen back slightly (8,986 at the time of writing), but to date this year the FTSE100 has gained more than 10%.
A significant factor in this is the make-up of companies in the FTSE100. These include household names in banking, such as HSBC and Lloyds Banking Group, and defence, including BAE Systems. Both sectors have seen strong earnings growth. The rally has also been driven in large part by mining and commodity stocks, with the price of copper rallying. This suggests the market is looking past the noise surrounding forthcoming US tariffs and taking a more positive approach.
Another less considered factor is the number of companies that have launched share buyback programmes in recent months, to boost their value or improve their balance sheet. As of December 2024, UK companies have outpaced their US counterparts in share buybacks, as a percentage of market cap. Meanwhile the number of mergers and acquisitions taking place is continuing to climb. Both factors help to underpin a stronger UK stock market.
Mind the gap
Yet the UK’s budget gap is becoming more of a problem. This has been compounded by government U-turns on welfare spending.
This week saw reports that the government was considering selling cryptocurrency confiscated from scam investment schemes in a bid to raise £5 billion for its coffers.
Whether this happens or not, tax rises look almost certain to be on the horizon in the Autumn Budget. So, is the picture gloomier than it might seem?
While any tax rises would likely have an impact on consumer confidence and potentially investor sentiment, there are solid reasons to be positive about the UK.
A key one is that the UK has also been an underperforming market for some time, which means it is less expensive compared to the US market, with greater opportunities for value and growth.
As highlighted above, earnings growth has been strong across large cap companies, and many experts believe the underlying fundamentals are strong for smaller and mid cap companies too.
Nina Stanojevic, investment specialist at SJP, says UK equities are “increasingly catching the attention of investors”, due to a combination of compelling valuations, strong earnings potential and market resilience.
“Valuations remain among the most depressed globally - both in absolute terms and relative to historical levels. This means they offer one of the most attractive valuation tailwinds in developed markets.”
The majority of FTSE100 companies also have significant exposure to international markets, with 70-75% of revenues generated overseas. This means the FTSE100 is notably less dependent on the domestic economy when it comes to performance, and therefore more resilient to potential downturns.
Adds Nina: “The UK's high international revenue exposure, coupled with robust dividend yields, supports not only strong global earnings growth potential but also income resilience.
“And from a portfolio perspective, UK equities also offer investors valuable diversification benefits.”
US downs – and ups
To say US markets have been on a rollercoaster this year could be seen as an understatement. The S&P 500 began the year at around 6,000 before plunging to 19% below its peak in early April, following President Trump’s so-called Liberation Day of tariff announcements.
But since then it has climbed steadily, with only small falls interrupting the climb upwards. At the time of writing, the S&P 500 stood at 6,296.
Highlighting the rollercoaster nature of markets once more, in April foreign investors withdrew more than $51 billion in assets from the US – the biggest monthly foreign outflow from US assets in five years.
However, data released by the US Treasury on Thursday of last week showed the opposite direction of travel. May saw a staggering $319 billion of foreign investment into the US – a record by a margin of $60 billion. US treasuries received $146 billion of inflows while US equities benefited to the tune of $114 billion.
Is confidence in the US misplaced?
While investor confidence appears to have returned, there are clouds on the horizon. Not least, the global tariffs announced by Trump which are due to come in on 1st August. Many countries are still attempting to secure deals before the deadline but time is running out.
Carlota Estragues Lopez, Equity Strategist at SJP, says: “While the markets may be expecting Trump to back down on tariffs in some way, there is no guarantee of this. The impact of tariffs is still very uncertain and that introduces fragility into US earnings.”
Carlota points to the fact that the number of US companies citing tariffs in their Q2 earnings calls is at an all-time high.
"We need more visibility on the impact of tariffs on US company earnings to assess whether the S&P 500 rally is backed by strong fundamentals,” she adds.
As well as negatively impacting companies’ profits, higher tariffs could push up inflation as businesses look to pass costs onto consumers.
The concentration risk
Over the last decade US equities have substantially outperformed international equities, fuelled by extremely high relative valuations of US companies. In particular, returns have been driven by the Magnificent 7 technology companies.
But this has caused a significant concentration risk. Around two-thirds of global equities now sit in the US. This is up significantly over the last decade or so. The top 10 stocks in the US make up over a third of the US stock market, marking the highest concentration in six decades.
Carlota says the high valuations of US companies combined with the concentration issue and the uncertain macroeconomic backdrop creates a riskier picture for investors going forward.
“Given elevated starting valuations, US equities appear to offer more downside risk than upside over the medium term. We cannot foresee when the US exceptionalism narrative will peak, but it is unlikely that it will grow from its current 70% weighting to closer to 100%, or a larger dominance of global equity indices.
“In contrast, given cheap valuations in the UK, there is a lot more room for upside surprises because there are lower expectations attached.”
According to the Federal Open Market Committee, the US is likely to see economic growth of 1.4% for 2025 – this compares to GDP growth of 2.8% recorded in 2024. Yet US jobs data published earlier this month was notably better than had been expected, with 147,000 jobs added in June.
And, with the Federal Reserve widely expected to cut interest rates sooner than had previously been expected, this could help the S&P 500 to rally further before the year ends.
As always, there is no crystal ball that can help predict the future. But with external factors such as the ongoing war in the Middle East and geopolitical instability, the only thing that looks certain is ongoing volatility.
Last week saw the FTSE 100 break the 9,000 barrier – reaching a new record high. Meanwhile, US markets continue to soar following a low seen in early April, and investors are returning to US assets.
It’s fair to say 2025 has been a rollercoaster for markets. While current trajectories are upwards, can investors expect the highs to continue? Or is a correction on the cards?
Has the UK turned a corner?
On Tuesday of last week the FTSE100 reached a record high of 9,016. It has since fallen back slightly (8,986 at the time of writing), but to date this year the FTSE100 has gained more than 10%.
A significant factor in this is the make-up of companies in the FTSE100. These include household names in banking, such as HSBC and Lloyds Banking Group, and defence, including BAE Systems. Both sectors have seen strong earnings growth. The rally has also been driven in large part by mining and commodity stocks, with the price of copper rallying. This suggests the market is looking past the noise surrounding forthcoming US tariffs and taking a more positive approach.
Another less considered factor is the number of companies that have launched share buyback programmes in recent months, to boost their value or improve their balance sheet. As of December 2024, UK companies have outpaced their US counterparts in share buybacks, as a percentage of market cap. Meanwhile the number of mergers and acquisitions taking place is continuing to climb. Both factors help to underpin a stronger UK stock market.
Mind the gap
Yet the UK’s budget gap is becoming more of a problem. This has been compounded by government U-turns on welfare spending.
This week saw reports that the government was considering selling cryptocurrency confiscated from scam investment schemes in a bid to raise £5 billion for its coffers.
Whether this happens or not, tax rises look almost certain to be on the horizon in the Autumn Budget. So, is the picture gloomier than it might seem?
While any tax rises would likely have an impact on consumer confidence and potentially investor sentiment, there are solid reasons to be positive about the UK.
A key one is that the UK has also been an underperforming market for some time, which means it is less expensive compared to the US market, with greater opportunities for value and growth.
As highlighted above, earnings growth has been strong across large cap companies, and many experts believe the underlying fundamentals are strong for smaller and mid cap companies too.
Nina Stanojevic, investment specialist at SJP, says UK equities are “increasingly catching the attention of investors”, due to a combination of compelling valuations, strong earnings potential and market resilience.
“Valuations remain among the most depressed globally - both in absolute terms and relative to historical levels. This means they offer one of the most attractive valuation tailwinds in developed markets.”
The majority of FTSE100 companies also have significant exposure to international markets, with 70-75% of revenues generated overseas. This means the FTSE100 is notably less dependent on the domestic economy when it comes to performance, and therefore more resilient to potential downturns.
Adds Nina: “The UK's high international revenue exposure, coupled with robust dividend yields, supports not only strong global earnings growth potential but also income resilience.
“And from a portfolio perspective, UK equities also offer investors valuable diversification benefits.”
US downs – and ups
To say US markets have been on a rollercoaster this year could be seen as an understatement. The S&P 500 began the year at around 6,000 before plunging to 19% below its peak in early April, following President Trump’s so-called Liberation Day of tariff announcements.
But since then it has climbed steadily, with only small falls interrupting the climb upwards. At the time of writing, the S&P 500 stood at 6,296.
Highlighting the rollercoaster nature of markets once more, in April foreign investors withdrew more than $51 billion in assets from the US – the biggest monthly foreign outflow from US assets in five years.
However, data released by the US Treasury on Thursday of last week showed the opposite direction of travel. May saw a staggering $319 billion of foreign investment into the US – a record by a margin of $60 billion. US treasuries received $146 billion of inflows while US equities benefited to the tune of $114 billion.
Is confidence in the US misplaced?
While investor confidence appears to have returned, there are clouds on the horizon. Not least, the global tariffs announced by Trump which are due to come in on 1st August. Many countries are still attempting to secure deals before the deadline but time is running out.
Carlota Estragues Lopez, Equity Strategist at SJP, says: “While the markets may be expecting Trump to back down on tariffs in some way, there is no guarantee of this. The impact of tariffs is still very uncertain and that introduces fragility into US earnings.”
Carlota points to the fact that the number of US companies citing tariffs in their Q2 earnings calls is at an all-time high.
"We need more visibility on the impact of tariffs on US company earnings to assess whether the S&P 500 rally is backed by strong fundamentals,” she adds.
As well as negatively impacting companies’ profits, higher tariffs could push up inflation as businesses look to pass costs onto consumers.
The concentration risk
Over the last decade US equities have substantially outperformed international equities, fuelled by extremely high relative valuations of US companies. In particular, returns have been driven by the Magnificent 7 technology companies.
But this has caused a significant concentration risk. Around two-thirds of global equities now sit in the US. This is up significantly over the last decade or so. The top 10 stocks in the US make up over a third of the US stock market, marking the highest concentration in six decades.
Carlota says the high valuations of US companies combined with the concentration issue and the uncertain macroeconomic backdrop creates a riskier picture for investors going forward.
“Given elevated starting valuations, US equities appear to offer more downside risk than upside over the medium term. We cannot foresee when the US exceptionalism narrative will peak, but it is unlikely that it will grow from its current 70% weighting to closer to 100%, or a larger dominance of global equity indices.
“In contrast, given cheap valuations in the UK, there is a lot more room for upside surprises because there are lower expectations attached.”
According to the Federal Open Market Committee, the US is likely to see economic growth of 1.4% for 2025 – this compares to GDP growth of 2.8% recorded in 2024. Yet US jobs data published earlier this month was notably better than had been expected, with 147,000 jobs added in June.
And, with the Federal Reserve widely expected to cut interest rates sooner than had previously been expected, this could help the S&P 500 to rally further before the year ends.
As always, there is no crystal ball that can help predict the future. But with external factors such as the ongoing war in the Middle East and geopolitical instability, the only thing that looks certain is ongoing volatility.
Wealth Check
Mastering business growth: An essential guide to finances and funding
Finances and funding are a vital aspect of successfully growing your business. Martin Brown, CEO of business growth advisory Elephants Child, explores some key questions business owners have on this topic. (Where the opinions of third parties are offered, these may not necessarily reflect those of St. James's Place).
Small and medium-sized enterprises (SMEs) are the backbone of the UK economy, representing over 99%1 of all businesses. But how do we fuel the growth of these smaller but vital businesses?
Scaling up requires strategic investment and funding. No matter what funding source you choose, lenders will want to see a robust business plan. Ensuring you have one in place will help maximise the chance of securing the necessary funds.
How much do you need?
This will vary depending on your sector, goals, and growth stage. At Elephants Child, we’ve found that a typical UK SME may require between £50,000 and £250,000 to expand operations, invest in technology, increase staff, or enter new markets. High-growth startups in sectors like fintech or health tech may need upwards of £1 million for product development and market penetration.
Where can you find the capital?
Traditional options include bank loans and government-backed schemes like the British Business Bank’s Start Up Loans or the Recovery Loan Scheme. For more flexible funding, consider venture capital (VC), angel investors, or equity crowdfunding platforms. Asset-based lending and invoice financing can also help with short-term cash flow.
Many business owners start with personal loans, credit cards and support from family and friends. Newer, fast-growing businesses might explore grant funding – especially in innovation-heavy sectors. Organisations such as Innovate UK offer non-dilutive grants for R&D activities. This is a type of funding which doesn’t require the business to give up any equity or share of ownership. Meanwhile, accelerators and growth hubs provide region-specific support and advice.
Ultimately, the key to securing funding is a solid business plan, realistic financial projections, and a clear growth strategy. Whether you’re scaling your team or launching a new product, the right funding can accelerate your chance of success. The right funding means matching funding to the need and understanding the numbers.
Should I take out a loan, seek investors, or self-fund?
Choosing how to fund your SME’s growth is a critical decision that depends on your business goals, risk tolerance, and financial situation.
Loans provide quick access to capital without giving up ownership. They’re ideal if you have steady cash flow and want to maintain control. However, you’ll need to manage repayments and interest, so ensure your growth plan supports future revenue.
Best for: Stable businesses needing capital to scale operations or assets.
Seeking investors - Equity funding from high-net-worth individuals, angel investors, venture capitalists, or crowdfunding platforms can inject significant growth capital and strategic guidance. You won’t repay the funds, but you’ll give up a share of ownership and decision-making power. This route is best for high-growth, scalable businesses looking to move quickly.
Best for: Startups or SMEs in high-growth sectors like tech or biotech.
Self-funding Also called “bootstrapping,” this method uses personal savings or reinvested profits. It allows full control and avoids debt or dilution. However, it limits growth speed and can strain your finances.
Best for: Early-stage businesses with modest capital needs and founders willing to take a financial risk.
There’s no one-size-fits-all answer. Consider your growth timeline, risk tolerance, and control preferences. Often, a hybrid approach - combining self-funding with loans or investment - offers the best balance. Securing that first “lead’ investor is a critical moment.
Seeking funding from angel investors, venture capitalists or crowd funding is unlikely to be the first option for raising finance, as there will be conditions attached by the fund managers to any agreement reached, which by their nature will be more onerous than those imposed by a mainstream lender.
Finances and funding are a vital aspect of successfully growing your business. Martin Brown, CEO of business growth advisory Elephants Child, explores some key questions business owners have on this topic. (Where the opinions of third parties are offered, these may not necessarily reflect those of St. James's Place).
Small and medium-sized enterprises (SMEs) are the backbone of the UK economy, representing over 99%1 of all businesses. But how do we fuel the growth of these smaller but vital businesses?
Scaling up requires strategic investment and funding. No matter what funding source you choose, lenders will want to see a robust business plan. Ensuring you have one in place will help maximise the chance of securing the necessary funds.
How much do you need?
This will vary depending on your sector, goals, and growth stage. At Elephants Child, we’ve found that a typical UK SME may require between £50,000 and £250,000 to expand operations, invest in technology, increase staff, or enter new markets. High-growth startups in sectors like fintech or health tech may need upwards of £1 million for product development and market penetration.
Where can you find the capital?
Traditional options include bank loans and government-backed schemes like the British Business Bank’s Start Up Loans or the Recovery Loan Scheme. For more flexible funding, consider venture capital (VC), angel investors, or equity crowdfunding platforms. Asset-based lending and invoice financing can also help with short-term cash flow.
Many business owners start with personal loans, credit cards and support from family and friends. Newer, fast-growing businesses might explore grant funding – especially in innovation-heavy sectors. Organisations such as Innovate UK offer non-dilutive grants for R&D activities. This is a type of funding which doesn’t require the business to give up any equity or share of ownership. Meanwhile, accelerators and growth hubs provide region-specific support and advice.
Ultimately, the key to securing funding is a solid business plan, realistic financial projections, and a clear growth strategy. Whether you’re scaling your team or launching a new product, the right funding can accelerate your chance of success. The right funding means matching funding to the need and understanding the numbers.
Should I take out a loan, seek investors, or self-fund?
Choosing how to fund your SME’s growth is a critical decision that depends on your business goals, risk tolerance, and financial situation.
Loans provide quick access to capital without giving up ownership. They’re ideal if you have steady cash flow and want to maintain control. However, you’ll need to manage repayments and interest, so ensure your growth plan supports future revenue.
Best for: Stable businesses needing capital to scale operations or assets.
Seeking investors - Equity funding from high-net-worth individuals, angel investors, venture capitalists, or crowdfunding platforms can inject significant growth capital and strategic guidance. You won’t repay the funds, but you’ll give up a share of ownership and decision-making power. This route is best for high-growth, scalable businesses looking to move quickly.
Best for: Startups or SMEs in high-growth sectors like tech or biotech.
Self-funding Also called “bootstrapping,” this method uses personal savings or reinvested profits. It allows full control and avoids debt or dilution. However, it limits growth speed and can strain your finances.
Best for: Early-stage businesses with modest capital needs and founders willing to take a financial risk.
There’s no one-size-fits-all answer. Consider your growth timeline, risk tolerance, and control preferences. Often, a hybrid approach - combining self-funding with loans or investment - offers the best balance. Securing that first “lead’ investor is a critical moment.
Seeking funding from angel investors, venture capitalists or crowd funding is unlikely to be the first option for raising finance, as there will be conditions attached by the fund managers to any agreement reached, which by their nature will be more onerous than those imposed by a mainstream lender.
In The Picture
With US equities recovering and moving to new record highs in recent weeks, it might be tempting to think that normal service of US market dominance will simply resume.
Yet you don’t have to look far into history to see that past performance is no prediction of future outcomes.
As the below charts show, in the first 10 years of the 21st century emerging markets were the soaraway growth story. US equities were largely flat over the same period. However, between 2010 and 2023 US equities far outperformed emerging markets.
Who knows what will happen in the coming years, particularly given the extremely volatile geopolitical environment and the economic pressures the US is facing.
Past performance is not a reliable indicator of future performance.
Please note it is not possible to invest directly into a financial index and the figures shown do not take into account any charges applicable to the appropriate investment wrapper or any relevant tax charges.
The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
Yet you don’t have to look far into history to see that past performance is no prediction of future outcomes.
As the below charts show, in the first 10 years of the 21st century emerging markets were the soaraway growth story. US equities were largely flat over the same period. However, between 2010 and 2023 US equities far outperformed emerging markets.
Who knows what will happen in the coming years, particularly given the extremely volatile geopolitical environment and the economic pressures the US is facing.
Past performance is not a reliable indicator of future performance.
Please note it is not possible to invest directly into a financial index and the figures shown do not take into account any charges applicable to the appropriate investment wrapper or any relevant tax charges.
The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
Source
1Gov.uk October 2024
SJP Approved 21/07/2025
