The UK had a week which was bizarre, hopeless, and hopeful in equal measure.
The Tory leadership has pledged to model itself on Argentina – that’s the same Argentina which has defaulted on its debt nine times in the last 200 years, most recently in 2022. Meantime, the Labour leadership is still lost in the weeds, to such an extent that even Jeremy Corbyn sees an opportunity. And the economic stats get worse week by week. But that’s good news, as it underpins continuing rate cuts this year and next (3% by the end of 2026?), and the UK stock market indices are heading higher in anticipation of better times, fuelled by those lower interest rates.
This investor enthusiasm for the UK is underpinned because there is some great value, and global investors ludicrous stance of “buy US equities to the exclusion of all else” at the turn of the year is being unwound.
Over the last week, the Chinese indices again lead, up 3-5%, with the UK not far behind, advancing 2%. Japan also had a late run, encouraged by tariff news, quickly spiking more than 3%. Brazil, Germany, and India held up the equities league table, though only barely changed rather than anything more dramatic.
Copper led commodities with a 7% gain, followed by gold and silver around 3%. Gold tried to break upwards this week, having drifted since April, but, as I write, is not quite making it – next week will be interesting.
It momentarily all seems quite calm, until Robert Prechter pops up. “The extent to which speculators have embraced risky assets is bizarre and hilarious” says Robert, who pinned down the 1987 Crash to the day, and this is some of what he is observing:
The value of the US stock market is more than the value of 12 other major stock markets combined, including China, Japan, India, UK, France, Germany, Spain, Italy, Mexico, and Brazil.
Taking Nvidia alone, if it were a country, it’s market value would make it the 5th largest economy in the world, behind US, China, Germany, and Japan. Alone it accounts for over 8% of the S&P 500. The company which last dominated to this degree was IBM in 1969 – it subsequently fell 59%. Let me be clear, IBM was an amazing company. The only problem was the daft valuation put on it by investors in 1969 – just as they appear to be doing with Nvidia in 2025.
It isn’t just retail investors at the centre of the mania. Fund managers are behaving like squirrels darting in and out of traffic. In April they rapidly went from the third-fastest swing to caution, to the fastest ever move to risk adoption (Source, BoA Global Fund Manager Survey). But the participation of all these players in the markets is very narrow.
As the S&P 500 eased its way to a new high in July, the share prices of a lot of companies outside the tech sphere weren’t joining in the fun. As the S&P hit highs, 97.8% of the index did not.
None of these unequivocal extremes are bothering the massed ranks of US retail investors. US household wealth is more than 50% invested into shares, an all-time high, and primarily their own stock market. At the beginning of the 40-year bull market, in 1980, this figure was 13%. An exposure of 10-13% is comparable with today’s number in Japan, EU, China, and the UK. The mania centred on the US could not be more clear.
Not holding back, in response to all of this and much more, Robert says:
“Wherever you look, things are not normal. They are stretched to absurdity.
Every bubble bursts, and the biggest bubble of all time will lead to the biggest bust of all time.”
Yet since the lows of April, such concerns are being put to one side by investors, and there is a Goldilocks feel. The story goes like this… the economy is holding up better than expected, the stimulus from the Big Beautiful Bill will help, trade wars are presently dormant as is inflation, and any signs of economic weakness will be met by rate cuts from September.
That story might work out, yet each of its components are questionable, and ignore other matters such as:
- The vast amounts of government debt about to be rolled over for which the buyers are dwindling.
- In so far as the Japanese have been important buyers, with their own bond yields now at levels not seen for decades, they are more likely to be repatriating money, not piling into the US.
- To attract more buyers, bond yields should go up, putting pressure on equities as a “risk-free” alternative.
- Interest payments on those existing bonds eat up 24% of all US tax revenue, and this feels bound to get worse.
- The real impact of tariffs will not be known until later in 2025 and 2026, whether on inflation and interest rates, or corporate profits and consumer confidence.
- US house prices are already under pressure, with unsold new houses at a fresh peak.
All of this means that considerable uncertainty remains, even if Trump transmorphs into Mother Theresa.
Take tariffs alone. The entire 11-member US Court of Appeal is going to consider their legitimacy on 31st July. It will almost certainly then go to the Supreme Court. Even if Trump loses, there are a number of other routes to be pursued to legitimise the tariffs.
All of this buys Trump time, as John Mauldin put it. If that time stretches a month or two or more ahead, and if Trump doesn’t do something incredibly stupid (again) in the meantime, the present momentum across most equity markets can persist. During that period, and within this continuing uptrend, you should expect a correction of up to 5% - only bigger falls would suggest that this Summer swansong is over.
That’s cautious optimism on my part for the period just ahead, but with the caveat that it remains sensible for most of us to employ a stop-profit strategy. Ordinarily we would say let your profits run, and cut your losers. But where we are is not ordinary.
Louis Gave has taken a more high level view, stretching forward years, and considers asset allocation as he asks the question “Where will the excess dollars go?”.
When US consumers or companies suck in goods from abroad, they pay by sending their dollars overseas, and that results in a lot of dollars floating around the world looking for a home. In the past these dollars found there way back to the US, buying a range of financial assets. After all, US assets were “Exceptional”.
If re-investing back into the US is no longer the hard-wired response if you sit on dollars, that leaves two options according to Louis.
The first is to buy commodities and build stock-piles. In a world seeking to re-build, and abundant risk of supply chains being disrupted, this is sensible. This is now happening, and it is notable that in the last 3 months gold is not the only commodity attracting buyers.
The second option for those foreign holders of dollars is to invest into their own countries in their local currencies, or at least into other non-US assets around the globe. To some degree this is also already happening, evidenced by the outperformance of non-US equity markets, and the fall in the dollar and US government bonds.
Finally, the Vintage Funds Report 2025 is now available to download here.
This year’s headline? 95% of funds fail to achieve a Vintage Rating (we really don’t think our criteria is that hard, though more detail on how we designed the ratings are explored in the above link).
The Vintage ratings are for those who would prefer to only review their funds once a year, and are content to select funds with a multi-year pedigree. These ratings work particularly well in some sectors e.g. for UK All Companies (annualised returns of 8.59%) and in the Global sector (annualised returns of 10.22%).
Personally, I like the Mixed 20-60 sector. These funds work for investors who wish to be a bit more hands off, and the Vintage funds in this sector are considerably better than the benchmark. Funds within these “Mixed” sectors are multi-asset, meaning they complement the “Buy and hold” approach more appropriately for many investors.
Please also remember that as well as the Vintage Report download, there is also our Best Funds By Sector (Vintage) Tool which has also been updated with 2025’s ratings. Here you will be able to quickly see a summary of the best Vintage rated funds from each sector that we analyse.
We always appreciate your feedback on our research projects, so once you've had a chance to review the report over the weekend, please feel free to share your thoughts with us.