The UK market achieved a new milestone today as the FTSE 100 broke the 9,000 barrier for the first time. We’ve heard a lot of doom and gloom about UK equities and the health of the stock market, but it underlines why I’ve been upbeat about the UK market this year.

Here’s a few thoughts on what’s going on.

Diversification away from US leadership has been a factor as US economic policy uncertainty rose this year and tariffs appeared – the FTSE has been a safe harbour in a stormy market for a number of reasons. The interesting thing is that we’ve hit 9,000 as sterling has seen a big rally against the dollar this year – magnifying the relative performance between UK and US equities.

The UK securing an early trade deal with Washington has helped remove some overhang relative to other markets, particularly Europe. The UK could see investment due to the need to divert exports to the US via the UK. In a world of 20-30% tariffs, a 10% rate makes the UK a winner and provides advantages to UK exporters.

Relative valuations have started to matter again due to macroeconomic conditions and higher rates with UK trading on forward earnings multiple at 13x vs US at 22x starts to look appealing. The UK has derated significantly since 2016 and is trading at its lowest in relative terms in 30 years. Low beta and defensive and positioning is light – a good place to head if markets turn.

The FTSE’s dividend yield is also the highest in developed markets. Investors may be tempted increasingly towards dividend strategies going forward – we are hearing this is happening. I wrote about the merits of dividend-focused stocks as the cornerstone of an equity portfolio recently.

Combine the yield + valuation discount and defensive characteristics and you get an appealing place to position in during a tough macro backdrop where picking winners is maybe harder than it has been until now when it was TINATA – there is no alternative to America.

Index makeup matters – defensives, longer-term plays, companies that are not being disrupted by tech (eg miners and defence, drinks, tobacco). Old fashioned stuff like free cash flow and balance sheets have mattered once more.

A flight to safety has supported Precious Metals – Fresnillo is the best performer this year, rising 155% YTD, due to record high gold prices and silver hitting a 14-year high. When the world can’t stop spending, rea assets like commodities are appealing – the FTSE’s basic resources focus has been a tailwind.

Major realignment of defence priorities has boosted stocks like Rolls-Royce and Babcock. RR is up 75% YTD and Babcock has risen 120%, while another major defence name, BAE Systems, is 65% higher for 2025.

Higher rates and inflation supports certain sectors like banks and financials, with Lloyds up more than 40% this year and Prudential rising 47%.
The FTSE’s global footprint has helped. Africa-focused Endeavour Mining and Airtel Africa have both rallied sharply this year.

But there are concerns about the position the UK economy is in. This is a double-edged sword for UK investors though.

The international focus of the FTSE 100 – with about two-thirds of earnings derived from abroad – offers some sanctuary on that front too for now, but the UK’s precarious fiscal position and lacklustre economic growth suggests trouble ahead for some more domestically-focused sectors.

The question will be whether domestic weakness is enough to pull down the index – I think that is unlikely to be a major problem, but we should note that pressure on gilts could cloud some judgments about the UK market.

On the other hand, political pressure on the Labour government, a looming fiscal crisis and lower Bank of England rates ought to push sterling lower and provide some further tailwinds for the blue chips.

And on tariffs, names like AstraZeneca and GSK are not out the woods yet as Trump has threatened 200% tariffs on drugs.

Overall, I’d say the FTSE has attraction from a value, income and defensive perspective given the volatility we have seen and changed macro backdrop and assumptions about US exceptionalism. a) it's offering some relative shelter with defensive names, b) benefitting from flow dynamics as investors look beyond the US, c) is enticing value-focused investors with relatively low multiples when growth is at a premium, d) offers a good dividend income yield and e) may be picking up a little juice from the government’s capital investment plans for defence/energy/houses. 10,000 here we come?