WeeklyWatch – The numbers aren’t on AI’s side

D.6367 Wellesley WeeklyWatch 10.02.26-HR_1420 x 474

10^th February 2026

Key Takeaways

As AI optimism declined, tech stocks struggled
Interest rates for the UK and EU remained flat
It was a landslide victory for Sanae Takaichi in the Japanese election

Stock Take

The AI sugar rush leaves enthusiasm slump

Sweet euphoria was felt by the Seattle Seahawks fans after the team claimed victory in the Super Bowl at the weekend – but the same couldn’t be said for investors, as AI fears resulted in equities being dragged down.

Up until now, AI had been a good opportunity for investors, with anticipation over its disruptive potential boosting tech stocks to historic highs. But in recent weeks, this thrill has faded.

Investors are now concerned with the significantly high level of investment that’s being spent in the unfolding AI arms race. An example includes Amazon: in the past, the company’s plans to spend $200 billion on AI infrastructure might have been warmly welcomed by markets, but instead, it contributed to a significant drop in its share price last week. The Equity Strategist at St. James’s Place, Carlota Estragues Lopez, asks the question: “Is the AI sugar rush over?”

Investor uneasiness is combining with already stretched US valuations to create some sharp swings. There was a 1.2% drop for the S&P 500 on Thursday – although it rebounded on Friday after people bought into the dip, which helped recover some of the losses.

Although big names like Amazon and Microsoft take up headlines, they’re not the only organisations that are feeling the pinch. Estragues Lopez notes:

“It’s not just return on investment that worries investors, but also the risk of narrow market leadership that struggles to broaden beyond a handful of mega-cap names. Software companies, once viewed as prime AI beneficiaries, are increasingly seen as vulnerable to AI disruption. The MSCI World Software Index, a gauge for developed market software companies, is down 21% year to date, with nearly all constituents in negative territory, including several in Europe.”

As well as software, new AI models have created new challenges in the legal and publishing worlds – several companies in these sectors have also dropped.

What’s ironic is that, so far, US results have remained fairly strong, with profit margins reaching their highest levels since 2009. Estragues Lopez adds:

“I would say that this is not a reason to panic. Recent equity market volatility was caused by uncertainty, which is one of the primary reasons that our asset allocation views are over the medium-term – to protect clients against this short-term uncertainty. Our asset allocation views lean towards areas that have a balanced sector exposure in both growth and value sectors (UK, Japan, Europe) and away from regions that are heavily concentrated in technology which makes them more vulnerable to large sentiment swings like the ones we have seen this week (US).”

European central banks hold rates steady

Moving away from the US, the European Central Bank (ECB) and the Bank of England (BoE) both voted to keep interest rates level. The ECB kept their interest rates at 2%. After inflation fell to 1.7% (below the 2% target), there was some hope for an interest rate cut in January. The bank decided, however, that the risks to growth and inflation were broadly balanced. It’s now widely expected that rates will be kept at the current level over the next few months.

There was, in fact, a bigger surprise from the BoE. It was expected that interest rates would be held this month, but it was a closer decision than first thought. When it comes to interest rate decisions, nine members of the Monetary Policy (MPC) – headed by BoE Governor Andrew Bailey – cast their vote. The latest vote ended 5–4 and Bailey cast the deciding vote.

Across the UK, politics took an invasive step into investing with the ongoing fallout of Peter Mandelson and his appearance in the Epstein files. Mandelson’s appointment as US ambassador by Keir Starmer has incurred more questions for Number 10. As a result, the fixed income market became unsettled and gilt yields rose.

Victorious Takaichi

In Asia, Takaichi’s call for a snap Japanese election paid off as she won in a landslide victory in the elections and gained a majority in the Japanese parliament.

Takaichi is popular with the voters and went to the polls trying to garner support for her plans for increased spending, particularly in the defence sector. With a fresh mandate, and a majority in the house, she’s now in a position to take more assertive action.

The Head of Asia and Middle East Investment Advisory and Comms at St. James’s Place, Martin Hennecke, noted that Takaichi’s landslide victory boosted equities while the yen weakened, but he warned:

“There is a possibility that inflation will rise as a result of supportive monetary policies as well, presenting a dilemma for the country’s savers to re-allocate cash holdings to other asset classes or face a rising risk of purchasing power loss through persistent negative real interest rates.
“Global investors might want to watch this carefully if not learn from it, as former Fed Chair and Treasury Secretary Janet Yellen warned last month about the preconditions for ‘fiscal dominance’ (i.e. the size of the debt prompting central banks to keep rates low to minimise debt servicing costs) strengthening in the United States, too.”

Wealth Check

Impact of pension shake-up on workers

Last year’s Autumn Budget saw the government take aim at pensions – and now a government watchdog has warned that upcoming changes could impact more workers than previously thought. The Office for Budget Responsibility (OBR) has assessed the forthcoming cap on pensions via salary sacrifice and suggests that the impact of these measures could go beyond higher earners.

The upcoming changes will see employee pension contributions made via salary sacrifice and above £2,000 a year become subject to employer and employee national insurance contributions (NICs) from the 2029/30 tax year.

A previous policy paper from HMRC indicated that less than half (44%) of employees using salary sacrifice would be impacted by the change. The remaining 56% (4.3 million people) wouldn’t exceed the £2,000 contribution threshold.¹

However, the recent OBR findings indicate that millions more could be impacted, depending on how employers react to the new cap, citing a “highly uncertain” behavioural response to the measures.² This could include switching everyone to a different pension set-up.

Among the possible responses, the OBR considered a potential change to relief at source (RAS) schemes as an alternative. This involves taking pension contributions out of employees’ net pay, not their gross pay. The pension provider will claim basic rate tax relief of 20% for the pension; however, higher rate and additional rate taxpayers must pay income tax and reclaim the additional tax relief from HMRC themselves. NICs are payable on contributions made through these schemes.

Should employers choose to shift entirely from salary sacrifice to RAS schemes, it could result in employers lowering salaries in exchange for higher employer pension contributions. If salary sacrifice is abandoned, it would eliminate NIC savings for all employees, including those not meeting the threshold.

It’s also believed by the OBR that employers may pass on a lot of the additional NIC costs to employees by lowering their wages. This could therefore impact those paying in less than £2,000 a year through salary sacrifice schemes.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Sources

¹ HMRC – December 2025

² OBR – February 2026

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

Past performance is not indicative of future performance.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2026. FTSE Russell is a trading name of certain of the LSE Group companies.

“FTSE Russell®” is a trademark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

Source: MSCI. Certain information contained herein, including without limitation text, data, graphs, charts (collectively, the “Information”) is the copyrighted, trade secret, trademarked and/or proprietary property of MSCI Inc. or its subsidiaries (collectively, “MSCI”), or MSCI’s licensors, direct or indirect suppliers or any third party involved in making or compiling any Information (collectively, with MSCI, the “Information Providers”), is provided for informational purposes only, and may not be modified, reverse-engineered, reproduced, resold or redisseminated in whole or in part, without prior written consent.

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SJP Approved 09/02/2026

WeeklyWatch – Investors’ eyes on Japanese elections

D.6367 Wellesley WeeklyWatch 3.02.26_1420 x 474

3ʳᵈ February 2026

January Round-up

• Markets were bracketed by the US forcing a regime change in Venezuela and growing expectations that President Trump might use force against Iran.

• Many major markets and assets had positive returns, and Asia and Europe outpaced the US in local currency terms.

• The tensions and tariff threats over Greenland faded.

• The new nominee for the position of Fed chair was welcomed by most analysts.

• Gold and silver saw dramatic falls on the final trading day of the month, but both still ended the period in positive territory.

Stock Take

Japanese election fever creates higher bond yields

Hype surrounding Japan’s upcoming election on 8ᵗʰ February may have been overshadowed following speculation about the Fed chair nominee and Trump’s falling out with allies over Greenland, but these election results could have implications for global markets.

Some investors see similarities between the Japanese Prime Minister Sanae Takaichi’s and former UK Prime Minister Liz Truss’ stimulus packages. While Truss advocated for unfunded tax cuts, Takaichi is promoting an extensive stimulus package. If voters approve of Takaichi’s policies, then there is a fear among investors that the Japanese economy could face higher inflationary pressures, which would put more pressure on Japanese bonds and the yen.

With long periods of low interest rates, Japan is one of the world’s largest creditors. The nation’s borrowing relative to its wealth (debt to GDP) is over 200% – more than double that of the UK. The higher inflation could push Japanese bondholders to demand higher yields, as compensation for the extra inflationary risks that come with a large stimulus package on top of increased government borrowing.

As for the yen, if it weakens, traders fear that the Bank of Japan (BoJ) will have to step in to support the currency through the selling of US Treasuries. This has led to speculation regarding a US–Japanese intervention coming into place to support the yen. If the BoJ sell off some of their US Treasury holdings, US bond prices could decrease and push US bond yields higher. As it stands, this intervention hasn’t come into effect.

Favourable Fed for markets

Despite this upcoming pivotal moment in Japan, the US once again stole the headlines. Many commentators felt highly optimistic following the nomination of a new Fed chair, Kevin Warsh, a previous (and the youngest ever) Fed governor. They commended his anti-inflation credentials – at a crucial time as US inflation is closer to 3% than the 2% target.

If confirmed, Warsh will be responsible for overseeing Fed action regarding interest rates after May, when the current chair, Jerome Powell, will finish his tenure. The resulting assumption that near-term rate cuts will be less likely weakened stock markets. The Equity Strategist at St. James’s Place, Carlota Estragues Lopez, said:

“US equity markets reacted negatively to Kevin Warsh’s nomination as the next Fed chair. Investors view his policies as less supportive of interest rate cuts, extrapolating his hawkish attitudes in the past.”

The Chief Economist at St. James’s Place, Hetal Mehta, added:

“We know President Trump wants interest rates to come down, but whichever way Warsh decides is best for interest rates, it’s unlikely he’s going to swing the whole FOMC (the Fed committee which sets interest rates) in his direction near term.”

She also noted:

“There is still quite a process before Warsh gets confirmed. This is probably not going to happen very quickly, given everything else that is going on politically in the US.”

Throughout his second presidential term, Trump has been critical of the Fed. He’s favoured lower interest rates and a weaker dollar, which could result in higher inflation. Assuming that Warsh will be confirmed as the new Fed chair, he could face challenges to the Fed’s independence. As it stands, the White House are seeking to remove one Fed governor, and Powell is under criminal investigation.

Record fall for gold and silver as January ends

The final day of trading in January was a dramatic one for silver and gold. The price of silver fell 31% in dollar terms by market close; during the day, it had been even weaker. This was the metal’s largest intra-day peak-to-trough fall in history. It was a similar case for the gold price, though in a smaller way, falling by 11% to just over $4,700 per troy ounce. This was another record breaker, being the largest one-day fall for the metal since 1980. But for the month overall, the metals rose – gold by 9% and silver by 17% (in dollar terms).

Some analysts suspect that the catalyst for the selling off of gold and silver was linked to the announcement of the new Fed chair, who is expected to prioritise lowering inflation.

It would mean less likelihood of near-term cuts for US interest rates, with continuing dollar weakness becoming less of a certainty. Precious metals have been benefiting from the wide expectation that the dollar will keep weakening – known as the ‘debasement trade’; these gave up ground with investors closing positions and taking profits.

The Fixed Income Strategist at St. James’s Place, Greg Venizelos, noted:

“With Warsh as a credible candidate, the debasement trade has gone into reverse. It was a strong session for the dollar on Friday.”

However, some analysts have highlighted that supports for gold are still in place. These include central bank buying as part of asset diversification, geopolitical uncertainty and higher volatility.

Wealth Check

Will there be more time to pay inheritance tax?

The government have been urged by a House of Lords committee to extend the inheritance tax (IHT) payment deadline on pension assets and for estates containing qualifying agricultural and business property.

The Economic Affairs Committee are proposing to extend the current deadline of six months to one year. It’s hoped that this will give grieving families more time to understand and sort out the significant complexities that come with paying IHT on these assets.

Such complexities include where an individual had many unused pensions, which could be difficult and time-consuming to find, and the increased reliance on professional advisers to sort out these assets, adding costs and risks for executors.

This recommendation arrives as pensions are facing a significant change in tax treatment. From April 2027, the majority of unused funds and death benefits will be included as part of the deceased’s estate and therefore fall under IHT.

Valuations for farmers and business owners may need to cover assets like shops and rental businesses, which makes things even more complicated! Specialist valuation demand will rise, increasing costs and causing more delays.

Late IHT payments are subject to interest charges at the Bank of England’s base rate plus four percentage points. Currently, this would equate to 7.75%.

Top tip:
Poor or no records can increase an IHT bill. HMRC allow certain regular gifts to remain outside of IHT, but only if they’re regular, made from surplus income and don’t reduce your standard of living.
If you’ve made any financial gifts, make a record of them and store it safely. This makes it easier for executors to find and verify exactly what was gifted. You can use form IHT403 to make a log of gifts and transfers you make during your lifetime, and this will then be completed once you pass away.

Lifetime ISA retiring elements

The retirement element of the lifetime ISA (LISA) looks like it will come to an end.

The government are currently creating a replacement LISA, which will only be for first-time buyers, with the 25% bonus paid at the time of property purchase, according to reports.

Under the new bonus structure, exit fees will be removed – a 25% withdrawal penalty under current rules, which applies if the tool is used for purposes other than purchasing a first home or retiring when you turn 60.

LISA rules currently allow individuals to contribute up to £4,000 each tax year and receive a 25% bonus from the government – up to £1,000 annually.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

Please note that Lifetime ISAs are not available through St. James’s Place.

In the Picture

Worries concerning Japanese inflationary challenges and government spending plans have pushed up Japanese government bond yields over the last few years. Their debt-to-GDP ratio is already over 200%. Could more expensive borrowing become more of a head scratcher for the nation’s leaders?

If Prime Minister Sanae Takaichi is re-elected after next weekend’s general election, there’s increased investor concern that her proposed stimulus package could have negative results when it comes to inflation pressures. The Japanese equivalent of ‘Trussonomics’?

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

Past performance is not indicative of future performance.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2026. FTSE Russell is a trading name of certain of the LSE Group companies.

SJP Approved 02/02/2026

WeeklyWatch – Geopolitics take a swing at markets

D.6367 Wellesley WeeklyWatch 27.01.26_1420 x 474

27^th January 2026

Stock Take

Are shake-ups the norm for markets now?

While Davos was at the centre of geopolitical ruptures and there was a brief threat of more tariffs, little had changed for the market by the end of last week.

The week began with a predictable play of events. President Trump’s tariff threats triggered investors into selling European shares and US stock futures (due to Monday being a US public holiday). But by Wednesday, some of these fears had subsided following Trump’s announcement of a vague framework deal concerning Greenland. Consequently, the markets were able to rebound in the middle of the week, with key indices on both sides of the Atlantic finishing the week off their lows. One significant casualty during the week was the dollar, suffering its steepest weekly decline since May 2025 against a variety of other currencies.

Since last year’s Liberation Day tariffs, investors have been more aware of the US possibly using tariffs in negotiations. The mid-week market rebound was seen as a reward for those who perceived this as a “Trump always chickens out” (TACO) opportunity. Even though investors faced uncertainty during the week, the VIX “fear index”, which is an indicator of US market sentiment, concluded the period at 16 – well under the 20 mark that’s usually an indicator of a stable market.

So why did markets recover so quickly during the week? Well, possibly because they’re already discounting the impact of geopolitical turmoil. What they do instead is to focus on the economic and corporate fundamentals as they’re easier to assess.

As the Fixed Income Strategist at St James’s Place, Greg Venizelos, put it:

“US administration policy has become so erratic domestically and internationally that investors may as well stay the course rather than try to react to each pronouncement by the President of the United States. Portfolio diversification and resilience is what will get portfolios through the next few years.”

This kind of approach offers a backdrop that’s more supportive. Data revealed during the week showed that the US economy grew at an annual rate of 4.4% in the last quarter of 2025 – a little ahead of expectations. Consumer and employment readings are showing to be benign.

Although the readings were encouraging, the core personal consumption expenditures (PCE) price index – the latest inflation measure favoured by the Federal Reserve (Fed) – reveals why inflation is still an issue.

On an annual basis, the November reading of 2.8% remains well above the Fed’s 2% target, meaning any upcoming interest-rate cuts are not a done deal!

Glinting gold

It was the strongest weekly return for the precious metal since 2008. Gold finished the period just below $5,000 per troy ounce – the price has doubled in the past 18 months. It’s benefiting from both the uncertainty in the geopolitical backdrop and the inflationary concerns mentioned above. The “debasement trade”, where investors perceive gold as a counter to unsustainable levels of government borrowings, is further boosting the price.

Poland’s central bank made an announcement during the week that they plan to purchase up to 150 tonnes of gold – adding to the 550 tonnes the nation already owns. Central banks don’t always report their gold purchases, but this is the largest one recently declared. No timescale was given to complete the transaction, but the bank’s Governor, Adam Glapiński, has stated that gold is “the only safe investment for state reserves [during] difficult times of global turmoil and search for a new financial order”.

Five times three for China

2025 was the third year in a row that China have achieved the government-mandated 5% annual economic growth rate. In the second half of the year, between quarters three and four, momentum slowed from an annual rate of 4.8% to 4.5%. Even though they faced additional US tariffs, China successfully managed to divert their exports elsewhere, reflecting the strength of their exporting prowess – reports show a 2025 trade surplus of $1.2 trillion.

The Chinese government haven’t set the annual growth target for this year, but reports currently suggest that China will set a range between 4.5% and 5%. This will be against an International Monetary Fund global growth projection of 3.3%.

However, if protectionism is taken up by more countries as part of their trade policy, then China – with their reliance on exports – are left increasingly vulnerable. As a result, numerous analysts expect the authorities to encourage a pivot to domestic consumption. But headwinds to achieving this include property market weakness as well as a weak job market.

UK navigate uncertainty

When it comes to data for the UK, there were some rather mixed results. It was another month of falling payrolls within the private sector and moderating wage growth, which increased at a sub-4% level for the first time in about three years. Which begs the question, is there now room for a rate cut?

The Chief Economist at St. James’s Place, Hetal Mehta, commented:

“As ever with the UK, the data is mixed. While wage growth has slowed, business sentiment data has picked up quite strongly, and we also had better than expected December retail sales. I think the Bank of England is likely to remain cautious on interest rate cuts, but with more of an easing bias, given the UK’s backdrop of subdued growth.”

Wealth Check

Deadline approaching for Self Assessment

There are only a few days left to file online Self Assessment tax returns and settle any tax due – failure to do so before the deadline of 31^st January will result in a late-filing penalty from HMRC. And anyone who fails to pay any owed tax by the deadline will also receive a penalty.

HMRC reported that in early January, 5.65 million people still needed to submit their Self Assessment tax return. In contrast, 6.36 million people had made their submissions by then.¹

The initial penalty for late tax returns is £100; this increases to £10 per day after three months. If the return still hasn’t been filed after 6 or 12 months, further charges of up to 5% are added.

If owed tax isn’t paid by 30 days after the 31^st January deadline, a penalty of 5% of the unpaid tax is issued. If the tax remains unpaid, then a further 5% penalty will be levied at 6 months and a further 5% at 12 months – all in addition to interest accrued on unpaid tax.

The self-employed, people in business partnerships, individuals who need to pay capital gains tax on assets sold and those who have untaxed income, for example foreign income or from renting out a property, are the ones who usually need to complete a tax return.

How best to avoid the fines

If you need to submit an online tax return to HMRC, it’s advisable to set up a calendar reminder for the middle of January to make sure the return is filed and the balance is settled before the deadline. Paper returns must be submitted to HMRC by 31^st October.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

Past performance is not indicative of future performance.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2026. FTSE Russell is a trading name of certain of the LSE Group companies.

SJP Approved 26/01/2026

WeeklyWatch – Are markets sailing into troubled waters?

D.6367 Wellesley WeeklyWatch 20.01.26_1420 x 474

20^th January 2026

Stock Take

Fast-flowing news unsettles markets

Unfolding news over the weekend once again demonstrated how quickly events can turn. One of the biggest headlines was President Trump threatening further tariffs, this time on countries that oppose his wish to purchase Greenland.

News started to emerge of a possible trade war and, unsurprisingly, European markets were down on Monday morning as a result, with the US outlook also looking negative.

Prior to this, the markets seemed to be holding up well going into the new year, despite facing several possible headwinds.

In addition to ongoing arguments regarding Greenland, news outlets were reporting on the continued volatility in Venezuela and the currency collapse, as well as mass protests in Iran. And that wasn’t all – further tensions continued in the Far East concerning China’s claims around Taiwan.

Over in the US, it’s also far from a happy picture. Federal Reserve Chair Jerome Powell has been put under investigation, a move perceived by many as an attempt to weaken the central bank’s power and ability to make decisions over interest rate policy.

Despite the volatility in the Fed, US equities reached record highs early last week, falling slightly as the week progressed. US Treasury bonds concluded the week near to where they started. On top of this, the FTSE 100 ventured further into record territory as the week went on. On the whole, since the big sell-off in April 2025, volatility has stayed amazingly low across the world.

Faith in the market

When it comes to explaining the market performance up until last Friday, it’s relatively simple: large, institutional investment houses didn’t anticipate that the rumbling tensions would end up causing actual geopolitical shocks.

Overall, the global markets indicated that investors believed that events would blow over or a compromise would be reached, like in the past.

The Fixed Income Strategist at St. James’s Place, Greg Venizelos, said:

“I think a lot of the market just didn’t believe a lot of what’s being talked about was going to happen. For example, if China were to invade Taiwan, that would obviously be really big. But talking to others around the industry, no one thinks China would be prepared to take such a risk for some time.”

Addressing the US situation, he notes:

“There is a general expectation that the November midterm elections will see the Democrats take control of the House. That should moderate the current administration’s actions somewhat. I think that is giving markets comfort.”

A surprise for UK GDP

It was relatively good news for our shores last week. The Office for National Statistics (ONS) announced that there was a 0.3% growth in UK GDP in November – above the 0.1% forecast.

Increased economic output was the reason cited by the ONS for the increase. The figures were supported by the return to production from Jaguar Land Rover that month, following the cyber-attack that meant they had to go offline for September and a large part of October. UK equities were helped by this, but as the FTSE 100 has been on an upward trend for a period of time, it seems unlikely that Jaguar Land Rover was the only influence.

Investors who have been looking to diversify their portfolio outside of US tech companies have helped UK shares over the last few months. The FTSE 100 is an index dominated by banks and mining companies and therefore acts as a great diversifier. Unsurprisingly, the index’s top 10 best-performing companies last year and in the year-to-date consist of mining, financials or defence.

Snap election on the horizon for Japan?

Reports have begun to circulate that the Japanese Prime Minister, Sanae Takaichi, is thinking about initiating a snap election, which could take place as early as February. Takaichi leads the current coalition government, but only with a tiny majority in the Japanese House of Representatives. Despite this, she’s polling very well. She’ll be hoping that personal popularity will turn into more votes and more seats for her party.

The Head of Asia and Middle East Investment Advisory and Comms at St. James’s Place, Martin Hennecke, gave his own warning:

“Takaichi still appears to have a high approval rating compared to a relatively fragmented opposition. That said, investors might want to pay more attention to economic and businesses’ fundamentals than political developments. The room to manoeuvre for whoever is in charge will be constrained by a combination of significant economic, demographic and sovereign debt challenges to deal with.”

Japanese shares have started well this year – building positively on strong returns in 2025. But Japanese government bond yields have been consistently rallying and are nearly double where they were at the start of 2025, which means the government will face increased interest payments in the future.

Wealth Check

More homes facing the mansion tax?

Homes that currently cost £1.5 million or more could be in line to be hit with the new mansion tax as the government looks to expand the scope of their revaluation efforts.

It was confirmed by the government’s Valuation Office Agency that they were beginning a review of homes in England believed to be worth £1.5 million or more, to ensure valuations were accurate and didn’t exceed the £2 million mansion tax threshold.

This latest set of reviews will be the largest revaluation of homes for more than three decades and could cover up to 200,000 properties that had been previously valued at up to £5 million. Critics have warned that broadening the valuation criteria is likely to draw more homes into the mansion tax threshold.

The tax was announced in the 2025 Autumn Budget, with plans to put it into force in April 2028, when the levy will be charged in bands according to the value of homes. As an example: a house that’s worth between £2 million and £2.5 million will face an annual council tax surcharge of £2,500. This will rise to a maximum of £7,500 for properties worth over £5 million.

Overall, the mansion tax is expected to generate around £400 million for the government in the tax year 2029/30, according to the Office for Budget Responsibility.¹

Last week, the Scottish government revealed a similar plan – they’re looking to apply a mansion tax on houses worth over £1 million as part of their own Budget.

Economic trouble reduces financial ambition

Economic pressures and uncertainty are becoming big influences in putting households off long-term financial planning.

This is according to St. James’s Place’s Real Life Advice Report 2025, carried out by Opinium to find out how attitudes to money, financial advice and the future had changed over time. Opinium surveyed 8,000 UK adults nationwide between 22^nd July and 5^th August 2025 and refreshed shorter surveys of a further 2,050 UK adults between 28^th November and 6^th December 2025. Quantitative data is taken from these surveys. Quotas and post-weighting were applied to both samples to make the datasets representative of the UK adult population. In the final chapter of the 2025 Real Life Advice Report, it identifies that the number of adults that have no financial ambitions for the following year rose from approximately one in ten (13%) to one in five (21%) between July and December 2025.

One of the most significant factors for this is the focus on day-to-day spending as a result of the increase in the cost of living, which makes it more challenging for households to put long-term financial planning into place.

The Chief Executive Officer at St James’s Place Wealth Management, James Rainbow, said:

“This widening ‘ambition gap’ speaks to a deeper challenge: when financial pressure becomes the norm, confidence in the future erodes, making long-term planning feel less possible for many households.”

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Source  

¹Office for Budget Responsibility – November 2025

In the Picture

It’s a two-way system when it comes to market volatility. For investors who have chosen to hold onto Venezuelan government bonds, or recent buyers, they have been able to benefit from the surgical strike conducted by the US.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

Past performance is not indicative of future performance.

Please note it is not possible to invest directly into a financial Index and the figures shown do not take into account any charges applicable to the appropriate investment wrapper or any relevant tax charges.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2026. FTSE Russell is a trading name of certain of the LSE Group companies.

Source: Bloomberg. BLOOMBERG® and the Bloomberg indices listed herein (the “Indices”) are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the Indices (collectively, “Bloomberg”) and have been licensed for use for certain purposes by the distributor hereof (the “Licensee”). Bloomberg is not affiliated with Licensee, and Bloomberg does not approve, endorse, review, or recommend the financial products named herein (the “Products”). Bloomberg does not guarantee the timeliness, accuracy, or completeness of any data or information relating to the Products.

SJP Approved 19/01/2026

WeeklyWatch – Investors tentatively stepping into 2026

D.6367 Wellesley WeeklyWatch 13.01.26_1420 x 474

13^th January 2026

Stock Take

What’s in store for 2026?

Not even two weeks into the new year, and investors are already navigating numerous potential market-moving events. The US’s intervention in Venezuela has initiated multiple financial market responses. And if that shock wasn’t enough, news over the weekend broke that Fed Chair Jerome Powell is under criminal investigation.

These events are certainly a reminder that unexpected events and market volatility will be almost inevitable in 2026. Let’s take a close look at some of the areas that investors will be keeping an eye on as the months unfold…

Hawk or dove approach for a new Fed chair?

At the end of May this year, Powell’s term as chair of the US central bank (the Fed) comes to an end. As a result, investors will be watching closely to see whether the newly appointed chair will adopt a ‘hawkish’ approach (favouring keeping interest rates higher for longer) or a ‘dovish’ one (lower interest rates). Whoever is appointed, they will be a key component in market sentiment in the upcoming months.

The ‘dual mandate’ set by the Fed aims to create the best conditions for maximum domestic employment that’s compatible with their 2% inflation target. Trying to keep this in balance has been dubbed one of the most difficult jobs in finance. The shortlist of candidates to replace Powell was completed before Christmas, and President Trump will make the final decision. When it comes to Fed policy, Trump hasn’t held back in his criticism, believing that decisions to cut interest rates should be made faster.

The choice to select someone potentially vulnerable to undue pressure could get a bad reception from investors and be perceived as an erosion of the Fed’s independence. And the news that Powell is now under criminal investigation, in relation to the US$2.5 billion renovations to the Federal Reserve Building, may contribute to growing concerns. A possible consequence could include investors demanding higher yields on US government bonds in order to compensate for the higher perceived risks.

Peace in Ukraine but without the dividend?

When Russia invaded Ukraine back in 2022, it brought an end to Europe’s decades-long ‘peace dividend’. For several years, numerous European members of the North Atlantic Treaty Organisation (NATO) failed to meet their 2% of economic output (GDP) for annual defence commitment. But against the backdrop of bigger regional tensions, member states have agreed to up their defence expenditure to 5% of GDP by 2035.

Even though this is a massive commitment, it could underpin the European defence sector and further areas if put in place. Moving to high-volume, low-expense systems – valuable against mass drone attacks – and increasingly digitised battlefields could bring more support to the order books.

However, with many governments already struggling with high levels of debt that are proving challenging to ease, a move like this will likely increase fiscal and political pressures across the continent.

The Venezuela intervention and tumbling oil prices

Oil markets saw a brief spike after the US strike in Venezuela, but then the price slumped to levels not seen since the height of the pandemic in January 2021. The current figure lies below US$60/bbl, while Trump has expressed a preference for a US$50/bbl level. For investors, they’re presented with a ‘glass half empty, glass half full’ situation. The pessimistic outlook sees the current relative oil price weakness as an indication of slowing consumer demand, weaker economic growth (GDP) expectations and global oil oversupply. On the other hand, the optimistic outlook will argue that the price is just right – not too high that it’ll push inflation higher and not too low to suggest a downward spiral in the outlook for the global economy.

When it comes to oil, there are conflicting forces. The OPEC+ group of oil producers, as well as the US, are producing high amounts, but demand is lacklustre. The growth that’s been recorded in China, Japan and the eurozone is expected to slow down in 2026 – China in particular. It’s the world’s second-largest oil consumer and has been the main booster of global oil demand for years. However, weak domestic consumer confidence has influenced demand. Additionally, there are upcoming structural changes, including the rise of electric vehicles (EVs), which make up half of new car sales across the nation.

For optimistic thinkers, they look to the broad positive benefits of lower oil prices, including its ability to reduce inflation and aid central banks in lowering their interest rates. The benefits go beyond cheaper utility and motoring bills for consumers and businesses, as businesses also benefit from improved profit margins without having to increase prices.

Lots of emerging market (EM) economies are big importers of oil and are more specific beneficiaries of lower oil prices. Government finances are boosted as less government revenue is spent importing oil. Furthermore, it relieves the cost of energy subsidies, undertaken by lots of EMs in Asia, Latin America and the Middle East (which includes top oil producers such as Saudi Arabia and Iran) to provide cheap energy.

China – what’s going on?

Last year, China’s stock markets saw a big rise, and even outperformed the US. However, its annual economic growth (GDP) potentially undershot its annual target of ‘around’ 5%. China’s 2026–2031 Five-Year Plan also comes into play this year and will lay out the next stage of the nation’s economic and social development – technology and innovation are expected to be the main focus.

Trade tensions between China and the US didn’t stop the former’s annual trade surplus (the balance between exports and imports) from rising to over US$1 trillion for the first time in 2025, while non-US exports filled the space from lower US demand. On the domestic side, there’s still not much sign of recovery in residential property prices (a major store of household wealth, affecting key areas like consumer spending). This continued to weaken in 2025 – the fourth year in a row. When combined with unsold housing inventory plus a weak jobs market, this heavily impacts consumer confidence and expenditure.

Investor sentiment could be Investor sentiment could be supportive on signs that China’s investment in AI will be influential in real-world applications for services and the industrial sector – even if Chinese economic growth remains below 5% over the year.

The next stage of AI

Global AI spending to date has been estimated at US$1.6 trillion – most of which has been spent on infrastructure. In 2025, a further US$375 billion is expected to have been spent. 2026 could be the year when investors start to ask AI companies and operators to “show me the money”. Even though OpenAI have said that profits aren’t expected to be seen until 2029, the company plans to invest over US$1 trillion over the next few years.

Long-term, this mismatch doesn’t seem sustainable and could result in lower valuations for the whole sector. Only a handful of tech companies account for between 35% and 40% of the US S&P 500, meaning that any weaknesses across AI-heavy companies could spark a broader market correction.

For investors in 2026, they may become more selective. The AI companies that can charge meaningful subscriptions and show a credible path to profitability are more likely to be rewarded. But AI companies that are reliant on never-ending funding rounds and have unrealistic projections will fade out.

Gridlock ahead of US midterms?

November 2026 could be a significant month for the US financial markets when the midterm elections take place. These elections grant the electorate the chance to vote on who controls Congress – think of it as the people’s response to the politician’s question: “How are we doing?”

It’s also gained a reputation for being known as the ‘midterm curse’, as the president’s party nearly always loses seats during these elections; this has been the case in 20 out of 22 midterms dating back to 1938. It’s likely the Republicans will be put on the defensive – assuming they lose control of either the House or the Senate. It would make things more challenging for Trump – his poll ratings are at a historic low as he endeavours to go ahead with his legislative programme, which includes tax cuts and deregulation across the environmental, crypto and technology sectors.

It may sound strange, but a stalemate like this can sometimes provide a positive backdrop for markets. Legislative logjams mean that the markets have one less thing to be concerned with, so they can devote more time to corporate activity. The benchmark S&P 500 has delivered double-digit returns in the 12 months following the midterm elections since 1950.

Missed the boat on gold buying?

During 2025, gold prices rose by a whopping 65%; it’s therefore not surprising that the price would increase again following the news of the US’s intervention in Venezuela. However, gold’s haven status during high geopolitical tensions is just one reason that underpins support for the precious metal. High levels of government borrowings in several developed economies, led by the US, add a bigger boost. The results: the possibility of increased inflationary pressures and weaker currencies.

Gold is a finite resource and has been shown to be an effective foil against currency debasement, yet it remains free of any default risk. The US dollar’s weakness against other key currencies throughout 2025 has probably had a helpful impact by reducing the cost of gold for non-US buyers. Additional high levels of gold purchases by central banks have further supported this, having significantly increased gold purchases since 2022.

Even though gold has enjoyed a great run, this may not be the case in 2026. If the US dollar strengthens and there’s an easing in geopolitical tensions, there could be some very different outcomes.

Wealth Check

A happy new year for pubs

Chancellor Rachel Reeves is set to back down on increases to businesses rates, following widespread worry that further increases will put many of them at risk of bankruptcy.

During her 2025 Autumn Budget, Reeves announced that business rate relief that was brought in during the pandemic would fall from 40% to 0% in April 2026, following a large-scale revaluation of pub premises, which saw large increases in rateable values.

But pushback from pub landlords and industry groups has forced the government to make another U-turn. They’re now believed to be considering many measures, which includes changing the methodology that calculates business rates or increasing the discount for pubs.

For businesses struggling in the hospitality sector, this eases the financial pressure somewhat. But it serves as another example where a decision that was announced in last year’s Budget has been reversed.

Another significant example of this was when a £1 million allowance on qualifying assets for agricultural property and business property was announced in the 2024 Budget. Following subsequent pressure from the farming community, the threshold was raised to £2.5 million in December. Further government U-turns include reinstating winter fuel payments and increasing National Insurance.

This latest announcement could cause further governmental headaches as other businesses within the hospitality sector (hotels, entertainment venues, etc.) are calling for similar changes to their billing situations.

In the Picture

Could the FTSE 100 be an investment sweet spot? In comparison to other indexes, it offers lower-priced exposure to a variety of in-demand sectors outside of AI.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

Past performance is not indicative of future performance.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2026. FTSE Russell is a trading name of certain of the LSE Group companies.

“FTSE Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

SJP Approved 12/01/2026

WeeklyWatch – Investing in 2025: the round-up

D.6367 Wellesley WeeklyWatch 16.12.25_1420 x 474

16^th December 2025

Stock Take

The economic movements of 2025

2025 has been quite the year for investors! There’ve been periods of volatility, but towards the end, markets made some impressive gains. The usual groups – AI, inflation and interest rate cuts – steered investor sentiment both in the US and on a broader global scale. In the final edition of WeeklyWatch for this year, we’re taking a look back at some of the standout moments in each month.

We’ll be taking a break over the Christmas period. WeeklyWatch will return on Tuesday 13^th January 2026.

January

The big tech favourite and AI company Nvidia experienced a 17% fall on 27^th January, registering a near US$600 billion drop in value. This mirrored investor fear towards the threat from DeepSeek, a Chinese AI start-up. The subsequent Nvidia sell-off secured a historic moment as the worst single-day loss in dollar terms for a listed company.

In spite of the negativity, global markets ended the month higher. However, the AI shakeout resulted in the US lagging behind other regions.

February

Shaping a new economic landscape? At the start of February, US President Donald Trump announced tariffs on imports from Canada, Mexico and China. After last-minute negotiations, the 25% proposed tariffs on Canadian and Mexican goods were suspended for 30 days.

US shares fell, with investors redirecting their focus to less risky assets like US Treasuries, whose prices increased.

March

Europe, the US and the UK’s inflation data (February) revealed declines compared to January. Fears continued over a possible trade war, but the European Central Bank (ECB) still cut their interest rates by 0.25% percentage points to 2.5% as a way of addressing the region’s weak growth outlook.

Over in the UK, the March Spring Statement reinforced priorities put forward in the 2024 Autumn Budget. Key areas included:

Investing in defence
Fixing public services
Accelerating economic growth

April

The term ‘Liberation Day’ frequently made our headlines following more US tariff announcements on 2^nd April. A wide range of reciprocal tariffs was announced on a long list of countries. This included the European Union (taxed at 20%), and a global tariff rate of 10% was placed on countries not affected by reciprocal tariffs.

For financial markets, this marked a spell of volatility. There was a sharp drop in shares, but they soon recovered following Trump’s announcement of a 90-day suspension on reciprocal countries that didn’t retaliate, allowing for a recovery of initial losses for the stock markets. Additionally, bond yields dropped before concluding the month with little change. The US dollar ended April lower.

On 1^st April in the UK, the stamp duty holiday ended when temporary increases to stamp duty thresholds came to an end. First-time buyers saw a fall in the threshold as to when they begin paying stamp duty, dropping from £425,000 to £300,000.

At the end of the tax year – 5^th April – the government said that unspent pensions would be included in estates for Inheritance Tax purposes from April 2027.

May

May became a good month for market recovery. The S&P 500 in the US generated its best monthly returns in 18 months. First quarter earnings in the US were supported by outsized returns from the ‘Magnificent 7’, plus an ease in trade tensions and more positive economic data played their role.

Moody’s Ratings had previously had the US sovereign credit rating at a perfect Aaa, but they decided to downgrade it to Aa1 – in step with other major rating agencies. The decision was influenced by the persistently high US budget deficits and the associated debt servicing costs.

In the UK, even though there was a temporary spike in inflation, the Bank of England (BoE) opted to reduce interest rates by 0.25% percentage points to 4.25%. There was also a boost in retail sales due to the UK’s maximum daytime temperatures being the highest on record.

June

There was a rise in US shares, and some major indices reached record highs. AI continued to boost investor sentiment (Nvidia’s first quarter sales rising almost 70% year-on-year) and negotiations were underway to stave off triggering the tariffs.

Oil prices spiked following Israel’s attack on Iranian nuclear facilities and then faded. The increased geopolitical tensions also contributed to a rise in bond prices and the US dollar weakened further to a multi-year low against the pound.

July

Finalising trade deals went a long way in calming investor sentiment as the 90-day US tariff extensions concluded. The S&P 500 and Nasdaq were boosted by AI-related enthusiasm and reached new highs.

The US President made comments about potential US government interference with the US central bank’s (Fed) independence that caused concern. The Fed chair, Jerome Powell, gave little sign of the possibility of a pending US interest rate cut, which resulted in some investors feeling unnerved.

August

Nvidia reclaimed the spotlight as leading AI firm Nvidia emerged as the world’s most valuable public company. This was a notable achievement amid analysts’ concerns surrounding the profitability of AI projects and considering the high levels of investment into AI and demanding sector valuations.

The month also saw the BoE break ranks with the Fed and make a 0.25% interest rate cut, even though UK inflation was way above the 2% target. August also saw emerging markets outperform developed markets. An easing in tariff tensions supported returns in China and commodity exporters in Latin America, which was helped along by a weaker US dollar.

September

US markets continued to grow thanks to increased optimism around AI. The Fed’s decision to cut interest rates early in September and increased hopes of another by the end of the year also played its role in boosting the markets.

Across Europe, the outlook was more challenging. Fears regarding the long-term sustainability of government finances resulted in a spike in UK yields. At one stage, the yield on UK 30-year gilts hit a 27-year high before a slight easing (it remains relatively high). Additionally, Fitch downgraded French government debt to A+.

October

The beginning of October saw a flurry of political instability. The French Prime Minister, Sébastien Lecornu, surprised many when he resigned on Monday 6^th October after less than a month in charge. As a result, French government 10-year bond yields increased to 3.58% – the highest in nine months – and French equities fell.

Volatility also re-emerged in the US when a partial government shutdown began, which would run into November. Shutdowns often make the headlines, but their impact on the stock markets is usually very limited. For example, the S&P 500 reached record highs towards the end of the month.

For the first time in history, gold broke the £3,000 per ounce mark. It began 2025 below £2,100, but persistent geopolitical uncertainty led investors to look for perceived ‘safe havens’, which resulted in prices going up.

November

UK Chancellor Rachel Reeves scheduled the Autumn Budget for as late as possible. As the day came closer, gilts and UK equities reacted to the rumours and leaks as to what she could reveal. The only certainty was that taxes would be increased.

Budget day ended up being rather eventful. An hour before the Chancellor delivered the Budget, the Office of Budget Responsibility (OBR) accidentally released their forecasts. Thankfully, as the OBR figures were better than expected, the markets remained calm (even though many of the expected tax rises came to pass). This slight reassurance of better fiscal headroom provided some comfort to gilt markets.

On 12^th November, after 43 days, the longest ever US government lockdown ended.

December

The end of the year saw the anticipated US interest rate cut come to pass. This quarter point cut was the third in a row, and interest rates are now at a three-year low between 3.5% and 3.75%. Inflationary pressures remain in place, and there are increased concerns surrounding the latest employment data that the Fed are now focused on tackling. After the cut, Powell said that interest rates were “now within a broad range of estimates of its neutral value”.

Figures published by the Office for National Statistics revealed that the British economy shrank by 0.1% in October. Analysts’ expectations had been geared towards a modest rise, but it reinforces hopes that the BoE will cut interest rates by 0.25% percentage points on 18^th December.

In the Picture

The Fed decided to cut interest rates last week, and they’re now at their lowest level for three years. Fed chair Jerome Powell suggested that future cuts will only happen if there’s a material deterioration in the labour market.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2025. FTSE Russell is a trading name of certain of the LSE Group companies.

Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

SJP Approved 15/12/2025

WeeklyWatch – Are Japanese interest rates climbing?

D.6367 Wellesley WeeklyWatch 9.12.25_1420 x 474

9^th December 2025

Stock Take

Sell-off initiated after BoJ governor comments

Needless to say, the governor of the Bank of Japan (BoJ) carries a lot of influence. And when he speaks, markets move. Kazuo Ueda’s latest comments hinted at a possible further rise for Japanese interest rates which resulted in an increase in bond yields (and a fall in their prices) in the US and UK, and a decline in global stock markets.

So why does the notion of higher Japanese interest rates rattle the global markets? Let’s take a closer look.

Negative Japanese interest rates – investors are a fan

Japan’s economy is the fourth largest in the world but has battled with low domestic consumer confidence and weak demand for several years. The result: falling prices, also known as deflation. Cutting interest rates was the BoJ’s solution to reverse this, with the hope that domestic consumers would spend more on goods and services rather than watch their savings lose more value.

The low, sometimes negative, interest rate environment was an advantage to overseas investors, who began to borrow yen and convert it into US dollars or euros. They then purchased higher yielding assets overseas, like US Treasuries, which delivered returns of 3% to 4%, as well as shares.

This relatively low-risk investing strategy is called yen carry trade. One way to compare it is using a cheap Japanese mortgage to buy a more expensive rental yield property in the UK or US – this has been popular among international investors.

An unwinding in carry trade in 2024

In early 2024, the BoJ raised their interest rates for the first time in 17 years. In August of the same year, a more substantial hike followed, leading to a double-digit percentage sell-off for the Nikkei index. With higher interest rates, overseas investors needed to rapidly pay off their now more expensive yen loans which they did by selling some carry trade investments, meaning that these prices fell. Additionally, the higher rates boosted the value of the yen which made it more challenging for Japanese exporters as products were more expensive overseas.

The Head of Asia and Middle East Investment Advisory at St. James’s Place, Martin Hennecke, said:

“The sharp rise in the yields of Japanese government bonds (JGBs) in a relatively short period of time serves as a reminder of the risk of using leverage when investing, with the yen being one of the most popular carry trade currencies.

“Any advice on the use of leveraged strategies can be conflicted as it often results in large amounts invested. This in turn can often backfire badly in an adverse scenario. Investors enticed into this type of strategy by high future return projections based on ‘historical evidence’ should tread very carefully. Financial markets can be more unpredictable than we would like to think.”

No historical repeats, but familiar patterns

At the beginning of the week, after realising the possibility of higher Japanese interest rates, global bond and share markets sold off. 10-year JGB yields now sit at their highest level since mid-2008. Japanese investors who’ve invested in US bonds are facing the temptation to sell their US Treasuries and repatriate funds to purchase JGBs.

Why is this important? Japanese investors are the largest buyers of US Treasuries. If fewer purchases are made, there’s a fall in price for US Treasuries, and yields rise to compensate. For the US federal government, this isn’t good news… They’re forced to pay a higher interest rate on the debt that is regularly re-financed. Their figures forecast that these interest payments will be $1.2 trillion in 2025 on the national debt, which is $37.6 trillion. Both sides have agreed that this option is unsustainable, but the rises continue.

Summarising global market activity

The BoJ comments created rather a weak beginning to the week, but despite this, US stock markets ended the period higher – the S&P 500 was less than 1% below its record closing high. And the remaining S&P 493 were outperformed by the tech-centred Magnificent 7.

Investor sentiment towards AI remains upbeat, and hopes are fuelled by the expectation of a 0.25% interest rate cut tomorrow (10^th December) from the US central bank, with potentially more to come in 2026. This will come as positive news for interest-rate-sensitive sectors and smaller companies as they often have higher levels of debt.

With the prospect of lower interest rates on the horizon, there was an easing on the US dollar. As a result, this makes gold (which is priced in dollars) cheaper for buyers using alternative currencies like the euro or yen. By the end of the week, gold had closed around 4% below its recent record high.

Across Europe, shares ended higher. And in Asia, there was a rallying for Japanese shares after a weak Monday, finishing almost 1% up. Additionally, shares also increased in China, where sentiment is underpinned by tech and AI themes.

Wealth Check

The gift that keeps on…taking

A freedom of information request has revealed that hefty Inheritance Tax (IHT) bills are becoming a reality for thousands of households in the UK, after falling foul of the seven-year rule on gifting.

More than 14,000 families are being asked to pay tax by HMRC after receiving gifts from relatives who have passed away within seven years of leaving their assets. The bills range in amount – some families are facing payments of millions of pounds.

Gifts that are over the £3,000 annual gift allowance become part of the person’s estate, meaning the recipient can become liable to pay IHT on them. IHT levied on gifts is charged on a sliding scale and is dependent on when the person passed away. If the person passed away more than seven years after issuing the gift, then no IHT needs to be paid.

As it stands, people can leave an estate worth up to £325,000 without recipients needing to pay IHT – known as the nil-rate band. This increases to £500,000 if a property is left to a direct descendent and the estate is valued at less than £2 million.

In April 2027, pension pots will become part of a person’s estate and therefore susceptible to IHT. Thus, more estates are likely to be pushed over the tax thresholds, meaning that more families and individuals will face IHT bills.

In recent years, HMRC have noticed more gross IHT receipts, with inflation pushing up asset prices. Between April and October of 2025, IHT receipts totalled £5.14 billion, an increase of £3.8 billion compared with the same period last year.¹

Do you have any questions about IHT and how it could affect you and your loved ones? Our expert advisers are able to evaluate your finances and help you plan the best way forward to help mitigate these costs.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Source
¹HMRC tax receipts and National Insurance contributions for the UK (monthly bulletin) – gov.uk

In the Picture

For monthly stock market returns, December usually delivers some of the best! With the new year approaching, investor sentiment tends to be more upbeat or ‘bullish’. And with many market participants away on holiday, trading volumes are lower. What this means is that fewer purchases are required to deliver a positive effect on performance.

Over in the US, technical moves like selling underperforming shares for tax purposes and reinvesting proceeds also contribute to this upbeat yearly conclusion.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2025. FTSE Russell is a trading name of certain of the LSE Group companies.

SJP Approved 08/12/2025

WeeklyWatch – The cat’s out the bag – Autumn Budget unpacked

W.24822 Wellesley WeeklyWatch 02.12.25_1420 x 474

2^nd December 2025

Stock Take

Positive initial Budget reactions

Last week saw Chancellor Rachel Reeves deliver her Autumn Budget. She has four key groups to please – party, electorate, business and the market – of which only the market response can be precisely measured. So far, test passed! As November drew to a close, important domestic financial indicators like government bonds (gilts), the pound and shares all ended higher.

Early reveal causes chaos

Budget day started off rather messily. The accidental early release of the Office for Budget Responsibility’s (OBR) fiscal forecast broke a cardinal rule in finance markets: no surprises.

As a result, gilt yields yo-yoed (yields and prices move in opposite directions). But by 28^th November, the yields on UK government bonds fell to their lowest level for the week. Despite it being a fairly modest drop, investors seemed to be giving the government’s fiscal plans the benefit of the doubt. Additionally, lower gilt yields meant that the UK was also paying lower interest rate on borrowings.

OBR to the rescue?

The Fixed Income Strategist at St. James’s Place, Greg Venizelos, identifies that the easing in gilt yields was:

“Likely a reflection of the fact the OBR’s upward revision in the fiscal headroom to £22 billion reduces the near-term risks associated with possible macro-economic shocks.”

Sterling strengthened slightly after the Budget was revealed, which could be an indication that investors were willing to adopt a ‘glass half-full’ approach.

Venizelos highlights that the chances of the Bank of England cutting interest rates in December have increased by over 90% and believes it’s almost a done deal. The OBR forecast of domestic inflation looking to slow to 2.5% in 2026 would boost this move. He adds:

“It’s worth noting this probability jumped from below 40% to over 70% on 6^th November, when the Chancellor made a speech hinting at income tax hike.”

Fiscal hole to fiscal surplus?

The Director of Public Policy at St. James’s Place, James Heal, says:

“The Chancellor managed to walk a difficult tightrope on the day, but some of the relief on the day may have already evaporated. There is now a strong media and political focus on the strong pre-Budget signalling of a fiscal black hole (thereby justifying some of the difficult decisions taken) which turned out to be a small surplus.”

Relief rally by UK shares

It was a good week for UK shares. The FTSE 250 (the domestically focused index) rose by over 3% over the course of the week. Plus, the FTSE 100 concluded the week in the green.

Rate-sensitive beneficiaries whose earnings are helped by lower borrowing costs – for example, banks as well as utility companies, electricity and gas providers with high levels of borrowing – were helped by the expectations that interest rates are set to ease. Also benefiting were property companies and (more significantly) housebuilders, with hints of a potential increase in mortgage demand. Some consumer-facing sectors like retail and hospitality rose, showing that apparent relief wasn’t targeted more harshly. On the opposite side, the gaming sector weakened after higher taxes were announced in the Budget.

Downgraded UK growth

Market reaction to the Budget wasn’t unconditional. The commentary – and critics – have been particularly looking at the impact on economic growth and whether the Budget goes far enough. Worries that there could be more tax implications in the long run were expressed.

It also wasn’t a bright macro picture. The downgrading of its productivity forecast by the OBR will result in a lower economic outlook from next year. Venizelos says:

“While the Budget managed to smooth market anxieties, at least in the short and medium term, we remain cautious due to the longer-term fiscal concerns.”

AI and interest rate cut hopes support US shares

Shares rose strongly in the US, even though the trading week was shortened because of the Thanksgiving holiday. Talk of a US interest rate cut later in December seemed to boost investor sentiment. There was also a rally in AI-related shares, helping the S&P 500 recover from a bad start in November and finish the month with a 0.1% gain. On the flip side, the tech-focused Nasdaq index revealed a negative monthly return for the first time since March.

There was also a rise in continental European shares. Notes from the European Central Bank’s October meeting revealed that the eurozone was in a good place, as inflation stayed near the 2% target – below the level this time last year.

Wealth Check

The Budget rumours are finally over, even if the early release from the OBR didn’t help the speculation…

Measures announced in Rachel Reeves’ Autumn Budget weren’t as drastic or dramatic as many had expected. But the upcoming changes are likely to be felt across UK households over the next few years.

It will take a few weeks for the dust to settle, and then there’ll be a clearer picture of who wins and who loses out. Until then, here are some of the main reforms that were announced.

A freeze in Income Tax thresholds

Income Tax and National Insurance contribution (NIC) thresholds have been frozen for three more years (until 2031, beyond the next general election) and are expected to raise £23 billion for the government. This so-called fiscal drag will result in more people edging into higher tax rate bands.

Savings and property Income Tax increased

There will be a rise of two percentage points for savings and property Income Tax for each band of taxpayers from April 2027. The rate will rise to 22% for basic rate taxpayers, 42% for higher rate taxpayers and 47% for additional rate taxpayers. A similar increase in tax on dividend income will take place from April 2026, but this will only apply to basic and higher-rate taxpayers.

The cash ISA allowance is reduced

To little surprise, the annual cash ISA allowance will be capped at £12,000 from April 2027 – but this only applies to savers under 65 years of age. The rest of the £20,000 annual allowance will be reserved for investments.

NICs on pension salary sacrifice contributions

People paying into their pension through salary sacrifice will begin to pay National Insurance on contributions that exceed £2,000 a year from April 2029. Employers will also pay National Insurance contributions (NICs) on such contributions.

Mansion tax

Those who own a home valued at £2 million or over will receive a council tax surcharge from April 2028. The ‘mansion tax’ will bring in annual charges between £2,500 and £7,500 levied, but this will be dependent on the value of the property.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is generally dependent on individual circumstances.

In the Picture

Not a friend, this trend… The UK tax take as a proportion of national wealth is set to rise to historic highs. Increased levels of tax take are being relied on heavily by the government to tackle debt and fund expenditure. Returning to a tax and spend could impact the UK’s competitive positioning for both investment and growth.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2025. FTSE Russell is a trading name of certain of the LSE Group companies.

SJP Approved 01/12/2025

WeeklyWatch – AI dominance sparks investor fear

W.24822 Wellesley WeeklyWatch 25.11.25_1420 x 474

25^th November 2025

Stock Take

AI fears shake the markets

In Japan during the 1980s, at peak stock market bubble, Tokyo’s Imperial Palace was estimated to be worth more than all the real estate in California. Unsurprisingly, the asset bubble burst as a result of the Bank of Japan raising their interest rates when they tightened their monetary policy.

Today, the opposite looks to be the case. In the MSCI All Country World Index (ACWI), only one company makes up over 5% of the overall index – Nvidia. To compare, Japan, which has one of the largest economies in the world, makes up just 4.89% of the index. The reason behind Nvidia’s rapid rise in value? Increased optimism surrounding AI which is largely reliant on Nvidia chips. Over recent years, these high levels of optimism have boosted the overall S&P 500.

The Equity Strategist at St. James’s Place, Carlota Estragues Lopez, identifies how the S&P 500 has experienced a huge rise since AI tech began to dominate the markets in October 2023. She states:

“Despite earnings strength being priced in, positive sentiment regarding AI companies continues to drive prices higher, which raises concerns over a potential price bubble. This is why investors are closely watching the most recent earnings season and markets are strongly reacting to disappointing results.”

Avoiding a dotcom repeat?

Investment awareness has increased, particularly when it comes to competing in the AI race. Expenditure was up 50% for Microsoft to US$16.8 billion in the third quarter, and Meta raised their 2025 guidance for capital expenditure to between US$70 billion and US$72 billion, for example.

These figures can be a cause for concern, with numerous investors remembering the dotcom bubble at the start of the millennium and some recalling the sub-prime mortgage bubble from 20 years ago in the US.

Consequently, investor nerves have resulted in market struggle over the last few weeks.

But it’s important to remember that there are big differences between now and other recent bubbles. One of which is that the big players today are profitable. Microsoft are an example of this, reporting a Q4 operating income of US$34.3 billion (an increase of 23% compared to the same period last year) as part of their latest results.

Estragues Lopez notes:

“Today’s technology giants have large cash buffers, which makes it more unlikely that we will see a systemic 2008-style crisis. There is a degree of operational interdependence, so if one of the ‘megacaps’ revenues suffers, this is likely to impact another, but they are ultimately independent, very profitable companies, well placed to absorb losses. It is unlikely that we will see a domino effect if one company fails.”

Investors continued to keep a close eye on Nvidia’s results from last week as they’re a key indicator of the health of the tech sector. The results showed that they beat expectations, however, it wasn’t enough to completely ease fears over a bubble.

Just one company having such a big impact on markets could be a warning sign regarding the dangers of concentrated portfolios. Estragues Lopez adds:

“The key takeaway from the past week should be that diversification is more important than ever.”

The data carries less weight

On home soil, it was revealed by the Office for National Statistics last week that UK inflation fell to 3.6% in October.

Even though the figure is significantly above the Bank of England’s 2% target, it’s the first figure drop since March 2025. ‘Sticky’ services inflation also experienced a drop, from 4.9% to 4.6%.

A fall in inflation has boosted hopes of an interest rate cut next month, but much will depend on what’s revealed in the Autumn Budget, due to be announced tomorrow. The uncertainty surrounding the Budget resulted in a slowing down in consumer spending in October, when it had been expected by economists to have stayed flat or grown.

Japan increase their spending

There was a significant rise in Japanese government bond yields last week. The Asian economy is facing big challenges:

The AI concerns over in the US have had a global impact.
Japanese and Chinese tensions have increased following Japanese Premier Sanae Takaichi saying that if Taiwan were invaded by China, a Japanese military response could be triggered.

Despite these difficulties, the Japanese markets responded to a large stimulus bill in a bid to encourage growth.

The Head of Asia and Middle East Investment Advisory and Comms at St. James’s Place, Martin Hennecke, says that the sharp rise in Japanese bond yields alongside the AI market concerns are a strong reminder on why diversification is important. He says:

“It also acts as a reminder of the severe risks of using leverage when investing. That includes borrowing in any other currencies, which can easily result in investors getting stopped out of positions at unfavourable times and be subject to much higher loss risks than assumed.”

Wealth Check

Increase in cash deposit protection limit

Benefits for savers are coming into place next week with increased protection on cash deposits and savings.

The limit will be increased to £120,000 from £85,000 from 1^st December by the Financial Services Compensation Scheme (FSCS). But what exactly does this mean for you? If a bank or building society fails, savers will have up to £120,000 of their deposit protected, per institution. For joint savings accounts, the protection will increase to £240,000 (£120,000 per person).

There’s also been an uplift in the amount protected under so-called ‘temporary high balances’ – such as those from property sales or insurance payouts. There will be a rise from £1 million to £1.4 million for six months.

As the Autumn Budget reveal draws close, many are waiting to see how hard and where the axe will fall. Reports from last week suggested that working pensioners may face higher taxes and electric vehicle owners could face new charges. There has been some speculation surrounding possible property taxes but until Chancellor Rachel Reeves makes the official announcement, nothing is certain.

On Budget Day, Wednesday, we will be posting an overview of the Chancellor’s key announcements. In the days that follow, we’ll also provide more detail on the different parts of the Budget, analysing what it could mean for different people, from business owners to pensioners and working families.

Please get in touch if you have any questions following the Budget.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2025. FTSE Russell is a trading name of certain of the LSE Group companies.

SJP Approved 24/11/2025

WeeklyWatch – U for uncertainty and U-turns

W.24822 Wellesley WeeklyWatch 18.11.25 _1420 x 474

18^th November 2025

Stock Take

A blue November

A week of inconsistency was in store for markets and investors as they endured many economic ups and downs. According to figures from the Office for National Statistics, the UK’s unemployment rate hit 5% – its highest level since Covid. And to rub more salt into the wound, third quarter economic growth (GDP) was disappointingly minimal. Jaguar Land Rover’s six-week shutdown that started in September – caused by a cyber-attack – was partially to blame.

Over in the US, a deal was made between a group of Democrats and the Republicans, ending the longest government shutdown in history. Despite this, the uncertainty still isn’t over; the government funding only runs until 30^th January 2026. Nevertheless, the end of the deadlock has been welcomed by the markets.

The US has faced challenging conditions in their labour market as well as stubborn inflation, but despite this, the latest corporate earnings season has been positive. Over 90% of companies have already released earnings. Out of these, over 75% delivered positive sales and earnings surprises.

The Equity Strategist at St. James’s Place, Carlota Estragues Lopez, highlights that the better-than-expected earnings weren’t just the case for the US. She states:

“As well as the US, we have noted that earnings upside surprises rose across other regions. They were particularly strong in Europe and Japan, although there were fewer in emerging markets, held back by some modest misses in China.”

Ending the week with a bang

The week started with a ‘business as usual’ approach for UK investors, but the end was a bit more explosive. Despite her strong indication that there would be an increase in Income Tax, Chancellor Rachel Reeves was reported to have done a U-turn, saying that the upcoming Autumn Budget wouldn’t break the manifesto promise of not raising Income Tax. This resulted in more investor uncertainty and a weakening of UK assets. There was also a fall in shares, and borrowing costs, which are reflected in gilt (government bond) yields, increased. Additionally, the pound weakened against the US dollar and fell to a two-year low against the euro.

Regardless of whether Reeves’ reasoning was politically focused – not wanting to break election pledges – or economic, where things may not be as bad as anticipated, her stance wasn’t well received by markets. Even though Income Tax rises are unpopular, there aren’t many analysts who disagree that tax rises are necessary to reduce the UK’s budget deficit mismatch between what’s spent and what’s earned or collected – alongside cuts to government spending. With only days to go until the Budget is announced, the government’s pullback has increased investor uncertainty further.

The Chief Economist at St. James’s Place, Hetal Mehta, noted:

“The government [is] trying to find a way to balance growth prospects versus manifesto pledges on taxes versus borrowing levels.

“UK inflation is still high and looks likely to moderate slowly and perhaps not as fast as the BoE (Bank of England) would like, suggesting there may not be an aggressive rate-cutting cycle in the UK.”

UK borrowing costs rise as bond prices fall

The reaction on Friday saw the pound weaken to a two-year low against the euro and decline against the US dollar. UK shares weakened too, but the benchmark FTSE 100 ended the week slightly ahead.

The price of UK government bonds also dropped, and yields (which move in the opposite direction) rose. The rise in bond yields makes the cost of future government borrowings even higher. Additionally, it unwinds positive sentiment that had been building since September, when investor expectations of a tough but necessary tax-raising Budget hardened.

Rising AI investment causes unease

There was a stabilisation in the US AI sector following the previous week’s sharp sell-off, but concerns remain despite this. There’s a large gap between the record levels of investment happening in the sector and the lower levels of sales for individual companies and the long path to profitability.

Investor concern is focused on the high levels of expenditure required over several years before they turn a profit. One of the most notable companies affected by this is OpenAI, which generates annual sales of $20 billion. Data provider Bloomberg reports that OpenAI are planning to invest $1.4 trillion in the next eight years in data centres and the chips needed to support their services. Moreover, they’ve forecasted no profit until 2030. This is strongly indicated by the gulf between investment plans and internal resources, and if investors become cautious, other companies in the sector are likely to be vulnerable. Share prices have fallen for many big names in AI, which includes some of the ‘Magnificent Seven’ tech companies. For example, Nvidia’s share price is now 10% lower than the peak they achieved at the end of October.

Waning anticipation for another US rate cut

Reports have arisen regarding a split within the US central bank (Federal Reserve) regarding a potential interest cut in December – an issue that has captured investors’ attention. The lack of data made available during the government shutdown impacted bankers’ ability to assess the relative risks between slowing job creation and inflation. Last month, the decision to make an interest rate cut was regarded as most likely. Within a month, however, market anticipation for a US interest rate cut has significantly decreased. Now, opinion is split: to cut or not to cut?

Wealth Check

Budget backdowns – how many more?

Markets may have reacted negatively following Chancellor Rachel Reeves’ decision not to raise Income Tax in the upcoming Autumn Budget, but was the decision made as a result of an improved economic outlook? It’s believed the move came about (at least in part) due to forecasts from the Office for Budget Responsibility.

Increasing Income Tax would have betrayed one of Labour’s manifesto promises and likely caused hostility from both the public and Reeves’ own party members.

Additionally, it’s been reported that Reeves has scrapped plans to increase taxes for lawyers and accountants in limited liability partnerships (LLPs), which could have created an estimated £2 billion in additional revenues. Reeves was warned by the Treasury that LLP members would be against this increase and take action to avoid the new charges, which could cost the government more than it might raise over the long term.

The Chancellor will need to rely on other methods to plug the estimated £30 billion hole in public finances. As new figures reflect low economic growth and increased unemployment, Reeves’ challenge looks even tougher.

After numerous rumours that there would be cuts to the tax-free lump sum allowance on pensions, reports now say that the Treasury has confirmed that no plans are in place to make changes to the tax-free cash rules.

Savers can currently withdraw up to 25% of their pension tax-free, up to a maximum of £268,275. A lot of financial advisers have noticed increased interest from clients to access the tax-free cash lump sum in 2025. There were rumours that the cash-free lump sum allowance would be slashed last year too, which also saw people requesting withdrawals in unprecedented volumes. In an effort to reassure savers, it’s been reportedly confirmed by the Treasury that it won’t feature in the Budget.

There have also been widespread warnings about the risks of withdrawing cash from pensions in expectation of a cut. Once a saver takes out their tax-free cash, the funds can’t be returned to the pension – there’s no undoing any action already taken if they have a change of mind. In recent weeks, HMRC has confirmed that payments of tax-free cash aren’t subject to cooling-off rules, and payment back to the scheme could have large tax consequences.

Last week also gave rise to rumours that there would be a possible removal of National Insurance savings on salary sacrifice pension contributions above £2,000, which would be extremely costly for higher-rate taxpayers. Because the move is so complex, it’s unlikely that anything will come into force with immediate effect.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

In the Picture

Tax and spend? The independent Office for Budget Responsibility reports that the UK tax take is on course to reach its highest levels since records began. This is also boosted by the increase in employer National Insurance and the freeze in tax thresholds.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2025. FTSE Russell is a trading name of certain of the LSE Group companies.

SJP Approved 17/11/2025