New highs on both sides of the Atlantic
US equities led the way, rising 3% to a new high, boosted by renewed investor confidence and strong earnings from key growth stocks. Nvidia became the world's most valuable company and the first to pass the $4 trillion milestone. The US rebound was matched by Asia and emerging markets, while Japan and Europe rose by a more modest 1%. Back home, UK equities recorded a fresh record high, advancing 2% overall, while small caps continued to outperform, closing 4% higher.
Gains despite a major escalation in the Middle East
Positive returns came against a backdrop of elevated political uncertainty, with a major escalation of hostilities in the Middle East. The crude oil price briefly leapt above $80 per barrel following US air strikes on Iran's nuclear facilities, before retreating below $70 per barrel on the announcement of a ceasefire, to close the month unchanged. Gold continued to consolidate following its sharp move higher earlier this year. Silver, however, finally started to play catch-up, surging 8.5% for the month.
It remained a busy time for the new US administration. On the international front, President Trump pushed back the 9 July deadline for trade deals to 1 August, allowing more time for negotiations. So far, only the UK, Vietnam and China have agreed outline deals, with exports to the US being set at 10%, 20% and 55% respectively. The latest delay was seen as supporting the idea that more deals will eventually be done. Domestically, the "Big, Beautiful Bill" was signed into law, sidelining Republican fiscal hawks who had attempted to rein in the current level of spending. The flagship bill will slash taxes and is expected to add at least $3 trillion to the US national debt over the next 10 years, with fiscal deficits above 6% of GDP set to continue. Against this backdrop, longer-dated US Treasury bonds remained volatile, and the dollar continued to drift lower.
A botched Welfare Bill puts the fiscal rules to the test
In the UK, the main story was the Government's botched Welfare Bill, where an attempt to trim total spending of £303bn by a mere £5bn was flatly rejected by Labour backbenchers unwilling to countenance any cuts in the face of the party's current dire polling numbers. The subsequent bond market sell-off was a sharp reminder to the Chancellor that breaking the Government's fiscal rules is not an option. With spending cuts looking politically impossible, further tax rises in the Autumn Budget are now seen as inevitable.
The UK economy shrank marginally in May for the second month in a row, although it is likely that US tariffs played a key role: the manufacturing sector pulled back after a stronger first quarter as companies attempted to front-run the start of the new levies. Forward-looking surveys such as the PMI and consumer confidence continued to point to an improvement in activity. However, employment fell for the first time in more than two years. Inflation held steady at 3.4% for May, well above the official 2% target, although the Bank of England expects the recent move higher to be short-lived, peaking at around 3.7% in September before falling back.
The Bank of England voted to hold interest rates at 4.25%, mirroring the decision made by the US Federal Reserve the previous day. Both decisions were expected, as mixed signals in the global economy underlined a "wait and see" stance. Markets are predicting that the next move down will be announced by both policymakers in August. This allowed bond markets to move modestly higher over the month. In the US, economic data was mildly positive, with jobs growth slightly better than expected, sentiment surveys improving and inflation ticking up to 2.4% but below expectations, suggesting that tariffs are not yet having a discernible impact on the overall level of prices.
A note from the desk
I am pleased to share our monthly update on market events. The overview seeks to summarise market movements together with our views and the rationale for the positioning of investments going forward. As always, should any aspect of this commentary prompt a question, we would welcome the conversation.
Martyn Charlwood · Managing Director
Comfortably ahead of benchmarks
Overall returns for 2025 are now in respectable positive territory for our standard portfolios, and comfortably ahead of their respective benchmarks. The portfolios have benefited from several key themes: the rotation away from the US to markets in the UK, Asia and emerging markets, and the strong performance of small and medium-sized companies within the UK. Exposure to both physical bullion and gold mining shares has also been a significant contributor to outperformance against benchmarks. Overall, the performance of our standard portfolios is in the first quartile over one, three and five years.
A recovery for the record books, and the question of valuations
The speed with which equities have recovered from their sharp "Liberation Day" losses has been one for the record books. Risk-on sentiment has returned as a result of easing trade tensions and generally robust data. After the initial shock of the trade tariff announcements earlier this year, markets appear to have largely put this behind them. The deals agreed so far suggest that tariffs will end materially higher than before, but not at a level which would derail the global economy. Moreover, interest rates look set to fall during the remainder of the year, providing a positive backdrop for financial markets.
Another reason for optimism is the shifting landscape for global growth. For the first time in years, regions such as Europe and China are taking a proactive role in stimulating their economies. This diversification of economic drivers should lead to a more balanced global economy, where investors do not have to rely on the US for returns.
One of the major themes of 2025 has been the sharp underperformance of US stocks, after an extended period of extreme dominance, as the "US exceptionalism" narrative has started to crack under high valuations, a weaker dollar and policy uncertainty. In the short term, it has not been surprising to see US equities regain some of the ground lost to other regions. However, as a result of the recent recovery, equity valuations in the US have returned to historically high levels, with US equities trading at twice the valuation multiples of other major markets. Valuations elsewhere have also moved up but remain reasonable in relation to both their history and relative to the US. US companies are still the best in the world, but valuations arguably more than reflect this. History tells us that stocks trading at these valuations rarely deliver the returns needed to justify their price tags. A strategy based on buying undervalued assets has proved the best way to ensure superior returns over the long term.
US companies are still the best in the world, but valuations arguably more than reflect this.
The shift away from excessive concentration in the US is good news for active managers with diversification strategies in place to benefit as assets in other regions come back into the limelight.
The United Kingdom
UK equities remain undervalued and under-owned despite their recent strong performance. The market offers exposure to global earnings, solid balance sheets, a high yield and valuations that remain low by international standards, suggesting there is still value to be unlocked. This is supported by the level of takeover activity, which has continued to accelerate. The recent broadening of the recovery beyond large caps highlights the superior valuation opportunities further down the market capitalisation spectrum.
Emerging markets
Emerging market stocks offer an attractive combination of historically undervalued valuations and opportunities for growth and income. Profits growth across the region has picked up in recent months and is now growing at a faster rate than in the US. China remains in stimulus mode, and the risk-reward trade-off is, in our opinion, particularly attractive. Our core position in the region was recently switched into the Artemis SMARTGARP Emerging Markets fund to take advantage of this trend. Latin America is also well positioned to benefit from the repositioning of global supply chains following the new tariff regime.
Bonds over cash
While equities remain our preferred asset class, the prospect of lower rates means that bonds should outperform cash. From an income perspective, yields are now attractive in both absolute and real terms relative to the level of inflation. Bonds also provide diversification in the case of slower growth but will not protect portfolios from the possibility that inflation remains higher for longer, with the exception of index-linked bonds. Upside is also likely to be capped by concerns over the sustainability of government debt, as policymakers lack the will to cut spending.
Diversification beyond bonds
The current environment argues for broader diversification, including inflation hedges like energy and commodities and geopolitical hedges such as gold, in addition to recession hedges like government bonds, alongside core holdings in equities. As well as reducing risk, incorporating additional asset classes allows us to capitalise on wider opportunities outside of traditional assets.
Conviction in gold
We continue to view gold as essential portfolio insurance. We have held the view for some time that the combination of higher geopolitical risk, deteriorating fiscal trends and strong central bank demand has the potential to drive a powerful bull market, where multiple pockets of global capital attempt to diversify away from dollar assets into gold as a safe monetary asset. The market is simply not large enough to absorb large flows without much higher prices. For gold mining equities, current prices are likely to translate into record profit margins and the highest growth rate of any sector in the broader equity market. Despite the recent move up, they remain very undervalued relative to the prevailing price of gold bullion.
Capturing the upside, controlling the risk
Overall, we continue to manage investments in a manner that allows us to capture the upside in financial markets while also effectively controlling risk, to dampen volatility and smooth the path of returns. This is the discipline our clients have come to expect, and the one we believe best serves the long-term stewardship of capital.
Important information
This article is a marketing communication intended for general information only. It does not constitute personal advice, a recommendation, or an offer to buy or sell any investment. If you are unsure whether an investment is suitable for your circumstances, please seek personal advice.
Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise. Capital values are at risk and not guaranteed. Forecasts and views expressed in this commentary represent our assessment at the time of writing and are subject to change.
To discuss how this commentary applies to your own portfolio, we would welcome a conversation.
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