FTSE 100 powers ahead on defence momentum and US tariff reprieve

Fidelity

London’s markets are pulsing with renewed energy as investor optimism climbs, fuelled by a powerful combination of geopolitical calm and sector-specific strength. The FTSE 100 is surging toward historic highs, driven by easing US-EU trade tensions and a rally in defence stocks that shows no sign of slowing down.

President Donald Trump’s decision to postpone a 50% tariff on European goods until July has thrown a lifeline to global markets. This unexpected delay in trade disruption has ignited a sharp rebound across European indices, with London’s benchmark index climbing 1% to reach 8,801.94, just shy of its record high set in March. Investors are seizing this window of calm as an opportunity to reposition ahead of potentially volatile months.

Among the standouts are defence and aerospace stocks, with BAE Systems and Rolls-Royce notching record gains. BAE soared 3% to an all-time high, while Rolls-Royce advanced 2.5%, reflecting bullish sentiment in anticipation of a NATO summit that could see a commitment to higher defence spending. This upward movement underscores the market’s confidence in the sector’s long-term growth trajectory, especially as geopolitical instability continues to underline the need for robust defence strategies across Europe.

The momentum is not limited to the FTSE 100. The broader FTSE 250 also climbed 1.2%, lifted by a surge in investor confidence. Hargreaves Lansdown reported a 70% rise in sentiment month-on-month, with optimism around UK economic prospects increasing by 85%. This resurgence in confidence is providing the kind of market support that could sustain gains well into the second half of the year, particularly as investors begin to price in a more stable macroeconomic backdrop.

Still, not all indicators are favourable. The latest data shows UK food inflation on the rise for the fourth consecutive month, highlighting persistent cost pressures that could weigh on consumer-facing sectors. While the delay in US tariffs is a welcome breather, it remains a temporary fix. Investors are already watching for signs of further escalation, with the IMF warning that delayed tariffs could still have significant repercussions for the UK economy later this year.

Despite these risks, the immediate outlook remains buoyant. Market leadership from sectors such as aerospace, coupled with the revival of investor confidence, paints a positive short-term picture. This confluence of supportive factors is helping to insulate UK equities from broader global uncertainties, at least for now.

The FTSE 100’s climb is a testament to the resilience of London’s financial markets in navigating geopolitical crosswinds. While vigilance remains key, especially with inflationary pressures and potential trade tensions still looming, the near-term horizon suggests continued opportunity for investors willing to ride the current wave of momentum.

Fidelity Special Values PLC (LON:FSV) aims to seek out underappreciated companies primarily listed in the UK and is an actively managed contrarian Investment Trust that thrives on volatility and uncertainty.

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