FTSE 100 shrugs off tariffs and war to enjoy best year since 2009

The FTSE 100 delivered its best annual performance since 2009, closing at 9,931.38 and rising 21.5% in 2025, while the FTSE 250 gained 9% for the year (closing 22,470.38). Gains were led by miners and defence stocks—gold +66% and silver +167% for the year, Endeavour Mining +159%, Fresnillo +436%, BAE Systems +49%, Rolls‑Royce +102% and Babcock +148%—as US tariffs, geopolitical tensions and AI-driven flows drove volatility and prompted US investors to diversify into London-listed assets. Global peers saw strong returns too (S&P 500 +17%, Nasdaq +21%, Dax +23%, Nikkei +26%), and tech momentum around Nvidia (+40%, ~$4.6tn market value) supported demand for UK funds with US tech exposure such as Scottish Mortgage (+24%) and Polar Capital (+33%).

Analysis

Market structure: 2025’s FTSE outperformance is a flow-driven reweighting — miners (precious metals) and defence captured incremental global risk-hedge and security-spend flows while UK domestic cyclicals lagged. Gold up ~66% and silver ~167% signal a large reallocation into hard assets; NVDA-led AI gains remained concentrated (NVDA +40%) and continue to dominate volatility and sector leadership. This bifurcation increases concentration risk in US mega-cap tech while propping commodity/defence beta in London.

Risk assessment: Tail-risks include an escalation of US tariffs (policy shock), adverse AI/antitrust regulation, or a China growth shock that would collapse cyclicals and tech — any of which could trigger >10-15% moves in equity indices within weeks. Near-term (days–weeks) market moves will be driven by tariff headlines and Nvidia earnings/guide; medium-term (3–9 months) by central bank real rates and defence budget rollouts; long-term (>1 year) by structural AI adoption vs. capex misallocation. Hidden dependency: gold’s strength is as much positioning/ETFs as fundamentals — a rapid unwind could cascade into miners and sovereign yield repricing.

Trade implications: Bias to own convex optional exposure to NVDA and selective physical/producer exposure to precious metals while hedging broad equity beta. Prefer ETFs/option structures to single-stock carry risk: GLD/GDX for commodities, ITA or large-cap defence names for secular defence spend, and NVDA call-spreads for asymmetric upside. Rotate away from crowded UK domestic small/mid-cap long positions where tariffs and FX can compress margins.

Contrarian angles: Consensus assumes commodity-run continues and defence re-rating is permanent — that may be overdone if rates rise or risk-on returns. Historical parallel: 2009 rebound concentrated in cyclicals but reversed when real activity disappointed; here, heavy positioning (ETFs/trusts) could amplify mean reversion. Watch USD strength and ETF flows as early indicators; an abrupt reverse in flows would create short-window alpha opportunities.

Key Decisions for Investors

• Establish a 1.5% portfolio long in NVDA using a 9–12 month 10%/30% OTM call spread (buy the 10% OTM, sell the 30% OTM) to cap cost; target +30–50% payoff within 6–12 months, cut if NVDA falls >18% from entry or prints a weekly close below its 50-day MA.
• Allocate 2% to GLD and 1% to GDX within 10 trading days to capture continued precious-metal reallocation; trim half position if GLD rallies >20% from entry or exit fully if GLD drops 15% from entry (time horizon 3–9 months).
• Add 1.5% exposure to defence via ITA ETF (or size-equivalent large-cap defence names) for a 6–12 month hold; take profits at +25–40% and stop-loss at -12% — increase to 3% only if European defence budgets are concretely legislated (monitor UK/EU announcements over next 60 days).
• Purchase a 3-month SPX 5% OTM put protection sized to ~1–1.5% of portfolio value or trade a VIX call spread to hedge a >10% equity tail from tariffs/AI regulatory shock; roll/replace if realized volatility stays <15% for 30 days or if tariff scope expands (monitor US trade releases within 30 days).