Financial Notes

THE NOTE 👋

Hey,

During this week’s note, I thought we could look back at another stellar year for investors and the reasons behind this continued positive market performance…

MARKETS 📈

Let’s start by giving a nod to the historically unloved FTSE100, the top 100 companies by market capitalisation listed on the London Stock Exchange.

It’s been an impressive year for the FTSE100, with year to date returns of 19.44% excluding dividends. As at writing, providing nothing wild happens between now and the 31st December, this would be the best year of returns for the FTSE100 since 2009!

But why?

Well here are a few of the reasons:

1) Financials

Banking stocks have been boosted massively by more favourable interest rates, allowing them to increase their net interest margin - this is just the difference between what Banks lend at versus what they pay out to depositors. However with a decreasing BoE base rate, this NIM may not be as favourable into 2026. Nonetheless, stocks like Lloyds Bank (+76% YTD), Barclays (+72% YTD) and HSBC (+49% YTD) have enjoyed huge stock price growth in 2025.

2) Defence

This has been another popular sector not just in the UK, but across Europe too thanks to an increase in government budget allocation towards defence due to continued threats from Russia. In February, Kier Starmer outlined his intention to increase defence spending to 2.5% of GDP by 2027. This compares to defence spending that has been anything between 1.8 to 2.2% over the past 10 years. Small % changes, but it’s worth billions of pounds. Resulting in companies like Rolls Royce (+96.46%) & BAE Systems (+49.5% YTD) seeing huge gains in 2025.

3) Valuations

UK investors have long awaited increased capital inflows and investor interest in UK stocks. In 2022, the FTSE100 traded at a price to earnings ratio as low as 8.6x earnings (this would be considered hugely undervalued by traditional value investing principles). However that interest did eventually come, as stock prices have risen, the PE of the FTSE100 is now 19.6x earnings in 2025, making it the most expensive stock market from a PE standpoint in Europe (albeit only marginally), although is still far cheaper than the US market at 26.7x earnings currently. It makes it an interesting position for those looking to seek out value in the market, and whether the UK is still that place in 2026 as it has been for the past few years.

Ok, so we mentioned the UK stock market, but what about other markets? Well now lets a look at the popular US market index the S&P500 - the top 500 companies by market capitalisation in the US.

The S&P500 has been another strong performer this year, with YTD returns of 17.2%. Driven by a continued AI boom with stocks like Nvidia (+32.8% YTD), Google (+66% YTD), Palantir (+156% YTD) and AMD (+77.95%).

BUT, if you’re a UK investor, you haven’t seen returns of 17.2% sadly… let me explain.

The USD has fallen by around 8% against the GDP so far in 2025. For UK investors, buying US equities requires converting pounds into dollars, which introduces FX risk. As a result, the weaker dollar has reduced the GBP value of US equity holdings by around 8%, even before considering the underlying performance of the stocks themselves.

In terms of how that looks in terms of actual returns for UK investors, well here is a popular US market tracking index the Vanguard VUSA S&P500 ETF…

Just 6.7% returns for a UK investor investing in US equities this year. It’s not very often the FTSE100 massively outperforms the US for UK investors, but this year it did, by a long way!

Of course FX rates swing around in circles, who knows, next year could be favourable for UK investors as its historically been the GBP devaluing against the USD over the last decade, but continued weakness for the US dollar could again hurt UK investor returns into 2026.

What about Europe? Well let’s take a look at the STOXX 600.

Another major equity market that has performed strongly in 2025, here are a few reasons why!

1) Diversification

Like the UK, European stocks in recent history have been undervalued against the more expensive US market, and this has arguably been another diversification play away from US stocks for investors.

2) Monetary Policy

The ECB have been quick to cut interest rates, now down at 2%, lower than that of the BoE (current rate of 3.75%) and US Federal Reserve (current rate of 3.5-3.75%), as a result its provided more advantageous conditions for stocks, as lower interest rates support growth, which supports more favourable stock prices.

Whilst nobody knows what’s going to happen in 2026, and past performance isn’t necessarily indicative of future results, all of this shows me why its so important to invest, allocating a % of my net worth to the stock market to grow my wealth over time.

Especially when we consider the average cash savings rate as at November 2025 was reported by Finder to be just 2.2%, investing becomes not just a growth strategy but a necessary way to preserve purchasing power and protect long term financial security against inflation and currency risk.

And that’s why I’ll be continuing to invest in 2026, which I'll be looking to share on YouTube throughout the year, so make sure you’re subscribed!

MERRY CHRISTMAS 🎄

I wanted to finish off this note by wishing you all a very Merry Christmas & Happy New Year.

I wish you all great health, wealth and happiness in 2026.💙

Thanks for all the support in 2025 you’ve given me! Over 17,000 of you subscribed to the YouTube channel, with over 2,000,000 views. I can’t thank you enough as we continue on this journey together!

Here’s to 2026, and hopefully another year of more investing education, and great market returns too! 📈

BONUS STUFF ⭐️

VIDEO OF THE WEEK 🎬