Investment market updates

Stock markets performing well despite Trump’s tariffs

Share markets around the world delivered good returns for the year ending June 2025. Despite concerns over US trade tariffs and conflict across Europe and the Middle East, global shares rose nearly 14% overall.

Early in April, President Trump announced a swathe of trade tariffs against major trading partners (and some more obscure ones), billed as ‘Liberation Day’. He believes that imposing tariffs on imports will reverse the trend (seen over many decades) of manufacturing jobs moving overseas, which appeals to his voter base.

The market reaction was not what he would have hoped for, with drops in US shares after the announcement, and falls in both US government bonds (which raised yields and government borrowing costs) and the US dollar (USD).

What followed was a series of pauses, exceptions for certain goods, and new trade deals, with most major share markets recovering strongly in May. Depending on your view, this was either an embarrassing climbdown for Trump, or evidence of a master dealmaker at work.

Hot on the heels of the tariff announcements, Trump sought approval for his tax and spending bill, termed the ‘one big, beautiful bill’. The bill, narrowly passed by both the House and the Senate, seeks to extend tax cuts, paid for in part by a reduction in welfare benefits and a phasing out of green energy tax credits. The bill also seeks to increase spending on defence and border control.

The bill may add over $3 trillion to national debt over the next decade. This raises concern that it will increase inflation (as could tariffs) and limit the ability of the US Federal Reserve to make deeper interest rate cuts.

Despite all the political noise, US and global stock markets performed well over the past year.

Sterling gains versus US dollar

We mentioned the fall in the USD. Currency movements are always relative – one currency’s loss is another’s gain, with Sterling (GBP) rising from $1.26 to $1.37 over the period. This is great if you want to go on holiday in the US or buy goods priced in dollars. Not so much when converting USD-priced investments into GBP. Although global share markets rose close to 14% over the year to June, the US makes up over 60% of the global stock market, so currency movements between GBP and USD can have a big impact on returns. That 14% return fell to a more modest 7% when converted to GBP.

Currency exchange rates (prices) are based on supply and demand. Two key factors in currency demand are the interest earned for holding it (domestic interest rates versus interest rates for other currencies) and inflation (how fast its value goes down).

The Bank of England (BoE) cut interest rates by 0.25% in February and again in May, bringing the UK base rate down to 4.25% by the end of June. This is a slower rate of decline than many had predicted. Stubborn inflation (3.4% for the year ending May) means the BoE has to be careful not to cut too much, too soon. The good news is that the recent spike in inflation above the 2% target is expected to be short-term, and the BoE predicts it will fall close to 2% by the end of next year. They won’t need to wait until then to make further interest rate cuts though and markets expect two further cuts this year, bringing interest rates down to around 3.75%.

Global conflict and the impact on energy prices

Inflation is key to interest rate policy. We saw a big spike in UK inflation in 2021-2022 (the Consumer Price Index hit 11%) due to delayed spending post-Covid and Russia’s invasion of Ukraine. Brent crude oil hit $120 per barrel in early 2022 but has fallen to just over half that now ($66.75 end June). How oil prices affect markets and investments click here to read the article.

The price of crude fell to $60 in May but rose in June as Israel launched strikes on Iran, known supporters of Hamas. The US then launched attacks against Iranian nuclear sites, saying that Iran must not be allowed to develop nuclear weapons. Oil prices rose to $82 but dropped again after a ceasefire ended the ‘12-day Israel-Iran war’.

Oil prices are predicted to fall further as tariffs bite and restrict global growth, assuming the situation in Ukraine and the Israel-Iran conflict doesn't worsen. Iran has threatened to block the Strait of Hormuz should further attacks occur, through which about 20% of the world’s oil and gas flows.

With no further oil and gas price shocks, interest rates in the US and the UK should be able to deliver further cuts, which would help both bond and equity markets.

UK shares perform strongly

Global shares rose 14%, but due to the strength of GBP, that was closer to 7% for UK investors after currency movements. UK shares (FTSE All Share Index) rose 11.2% with European shares (excluding UK) a little lower at 8.8%. Aerospace and defence was a standout sector for both UK and Europe, with NATO countries agreeing to ramp up defence spending to the NATO target of 2% GDP soon and 5% by 2035.

UK shares were also buoyed by a new UK-EU ‘reset’ deal aimed at reducing post-Brexit trade frictions. GDP growth of 0.7% in Q1 and upgraded IMF (International Monetary Fund) growth forecasts added to the positive outlook.

US stocks had a strong year, particularly in the first half, with strong gains from the tech giants. The S&P 500 Index rose 15.2% but this fell to 6.2% for UK investors when factoring in the fall in USD versus GBP.

Chinese stocks led the way in emerging markets, up 34%, falling to 24% when converted into GBP – still a very strong return. China announced market interventions to boost output and consumer spending, targeting 5% GDP growth for the year. Momentum from DeepSeek AI models helped its tech sector and China hopes to surpass the US as the global AI leader by 2030. That ambition is not lost on Trump, and we expect trade relations between the US and China to remain edgy at best (at time of writing, Chinese imports were subject to 30% tariffs, but briefly rose above 100%, with China responding in kind).

Have a read here to learn how AI can affect your investments.

Bond markets positive – except those with long maturities

Bonds click here to read our article gave positive returns overall, but mostly at lower levels than shares. Globally, bond (corporate and government) returns were 6%. Not all bonds were positive though. Those with long maturities (and more sensitive to interest rates) fell in value. For example, gilts with over 15 years to maturity fell 4.2%.

High-yield corporate bonds in GBP, which have credit ratings lower than BBB, were the standout performers with returns of 10.6%. Bonds with stronger credit ratings (AAA to A) returned a more modest 4.8%. When bonds with lower credit ratings outperform, it usually means the market is confident that companies can repay their debt.

UK Government bond (gilts) yields (income from the bond divided by the price of the bond) ended the period at 4.5% for ten-year gilts and 3.8% for two-year gilts. Yields at these levels were last seen in the global financial crisis of 2007-08 and it makes government borrowing more expensive. With dissent in the Labour party about welfare reform and pledged increases in defence spending, Rachel Reeves faces a harder task to balance the books while enabling growth. If interest rates are cut twice this year as we expect, gilt yields should fall and reduce pressure on UK finances.

Virgin Money investment funds

All Virgin Money funds had positive returns over the year (to end June) except the specialist Climate Change fund, which fell 2.5%.

Our three multi-asset growth funds (Cautious to Adventurous, also known as Growth Funds 1, 2 and 3) saw a narrow growth range of 5.4% to 6.2%. The Cautious and Balanced funds’ bond exposure avoided longer maturity bonds (where there were losses) and returns were only marginally less than the Adventurous fund, which has more invested in shares.

Our lower-risk multi-asset fund, the Defensive fund, had a strong year, returning just over 5%. Its focus on lower risk, shorter maturity bonds generated good returns, while keeping volatility (ups and downs in value) lower than our other funds. The Bond Fund returned a little less, 4.4%, in line with its benchmark of 5-15 year UK Government and corporate bonds.

The UK Index Tracker fund had the highest return for the period at 10.9%. It benefited from strong performance from aerospace and defence companies and the mining sector (gold hit a record high in April). Both sectors returned more than 60% for the year. Banks also performed strongly (+40.5%) with interest rates remaining relatively high, enabling strong earnings. In contrast, oil and gas stocks dropped 14.5% as tariffs affected the outlook for global trade.

The Global Share fund returned a more restrained 5.6% as the strength of sterling cancelled out some of the gains from US shares, which make up about 55% of the fund. A highlight for the fund was the addition of a new responsibly invested Asia Pacific fund, one of the better performers over the last six months, up 7.2%.

The Climate Change fund had a good final quarter (up 6%), but earlier losses meant it was down 2.5% over the year. This fund invests differently from our other funds, with a concentrated portfolio of 30-45 companies developing climate change solutions and showing good environmental practices. Some of these companies fell in value due to concerns around funding for green energy projects, and the fund didn’t invest in some sectors which outperformed, such as defence and banks. We believe the headwinds faced by the fund over the last year, experienced by most climate and environmental funds, are temporary, and the need to invest in climate change is as important as ever.

You can see the return for each of our funds over the last five years on each fund’s web page.