The FTSE 100 hit a record high above 9,400 points, driven by AstraZeneca. UK stocks have shown strong gains this year, with the Morningstar UK Index returning 18.3% year to date. Financials and defense stocks have played a key role in maintaining market gains, outperforming other major indexes.
Investors are closely watching Rachel Reeves’ Autumn Budget for possible tax increases. Reeves hinted at incoming tax rises, raising speculation about the impact on UK stocks. The decisions made in the budget will heavily influence equity performance in the final quarter of 2025.
UK banks and financial stocks may face new taxes in 2025, with speculation of levies on specific sectors. The financial services industry could be a focus, with the Morningstar UK Financial Services Index posting strong returns of 30% year to date. Some UK banking stocks are currently trading at fair value after strong gains this year.
Defense stocks in Europe, including UK-listed names like Rolls-Royce and BAE Systems, have seen strong performance. Analysts expect defense stocks to continue rising in Q4 due to long-term benefits from European defense contracts. Despite potential earnings downgrades, these stocks remain favorable for investors.
BAE Systems is well aligned with US Defense Department growth programs, deriving 45% of its revenue from them. The European defense market is experiencing higher growth due to escalating global security concerns. While Rolls-Royce is trading in 3-star territory after this year’s gains, BAE Systems stock remains undervalued according to Morningstar analysis. Investors are eagerly awaiting the Autumn Budget for potential sector-specific tax increases. Financials and defense stocks have shown strong performance this year, with expectations for continued growth. UK healthcare stocks are outperforming expectations under the new US pharma tariff regime. A collaboration between Australia, the UK, and the US will benefit BAE as the prime contractor for Australia’s nuclear submarine fleet. AstraZeneca and GSK are making strategic moves to boost their positions in the market, with AstraZeneca seeing a near-10% gain in the fourth quarter. Both companies are considered undervalued according to Morningstar metrics. Healthcare stocks are worth watching in the fourth quarter due to their diversification against global shocks and the less punitive tariffs imposed by President Trump. Smith & Nephew is another stock to keep an eye on as it has shown significant growth this year and is considered fairly valued.
Read more at Morningstar.
Analysts anticipate sector-specific tax increases in the Autumn Budget. Financials and defense stocks have seen strong performance this year, with expectations for continued growth. UK healthcare stocks are surpassing expectations amidst the new US pharma tariff regime.: What’s the Outlook for UK Stocks in Q4?