Ftse 100 volatility down: Tariff risk mixed with market expectations

Recently, according to the "Share Podcast" media report, the recent performance of the FTSE 100 index has been affected by a number of factors, especially issues involving tariffs and market expectations. Overall, the index fell, with some heavyweights such as Rolls Royce, GlaxoSmithKline and Melrose Industries acting as drags.

First, shares in Rolls-Royce and GlaxoSmithKline fell, reflecting concerns about their future profitability. Rolls-Royce, a major player in the aerospace and engineering sectors, has been hit hard by changes in the international trade environment, especially if the Trump administration fails to give Britain special treatment, the company could face higher tariff costs. In addition, slowing global aviation demand and increased supply chain uncertainty have further impacted its share price performance. GSK, as a pharmaceutical giant, has been affected by increased competition in the industry and pressure on drug pricing, while regulatory risks and policy changes in emerging markets could also be headwinds going forward.

Melrose Industries' decline may have stemmed from investors' doubts about its M&A strategy. The company has relied on an acquisition strategy in recent years to increase its scale and profitability, but changes in market conditions could limit future expansion opportunities. If funding costs rise or market confidence in highly leveraged companies declines, the company could face greater financial pressure. In addition, after Brexit, some manufacturing companies face supply chain disruptions and rising raw material costs, which further aggravate market uncertainty.

Looking at the overall market trend, the tariff issue remains at the core of investors' concerns. The Trump administration's trade policies pose a threat to British businesses, particularly for manufacturing and export-oriented companies, where additional tariffs could undermine competitiveness and erode profit margins. This risk is even more pronounced in the context of slowing global economic growth. There is considerable uncertainty in the United States' trade policy towards the United Kingdom, leading to a lack of investor confidence in British companies involved in international markets.

On the other hand, the rebound in WPP's share price looks paradoxical. Bank of America Merrill Lynch's share price rose in spite of its forecast of a further deterioration in first-quarter revenue growth, either because the market has priced in negative expectations ahead of time or because investors still have some confidence in the long-term outlook. However, the advertising industry itself is facing structural challenges, with digital trends exacerbating the pressure on traditional agencies to survive, and there are questions about whether WPP will be able to effectively address this challenge in the future. Customers in the advertising industry are shifting to more targeted digital AD delivery, which is putting the business model of traditional advertising agencies under threat.

Bunzl's slight rise was largely driven by an upgrade from Stifel, but such rating changes often struggle to support the stock price in the long run. Ratings agencies may base their judgments on short-term factors, while in the long term, Bunzl's continued growth remains dependent on its business model and market demand. An analysis of Bunzl's growth model shows that the company relies on mergers and acquisitions to expand, but its ability to make acquisitions may be limited if the economic environment deteriorates. In addition, global supply chain issues could affect its logistics and distribution efficiency, further limiting growth potential.

Diageo is more typical. Berenberg noted that Diageo and Pernod Ricard offer the most attractive risk/reward profiles in the current environment of tariff uncertainty, but that judgment is still open to question. First, Diageo's share price and valuation have adjusted, and the market has priced in some of the impact of higher US bond yields and lower earnings expectations. However, the tariff risk remains, and it is doubtful whether the company, while having the advantages of scale and geographic diversification, can fully eliminate this risk. Changes in global alcohol consumption trends, such as a shift in consumer preferences towards lower alcohol or healthier drinks, could also have an impact on Diageo's business.

Berenberg's 2025 EV/EBITA figure of 14.5 times compares to Pernod Ricard's premium of about 10 percent, but whether this premium is justified is still up for debate. What investors need to focus on is whether that premium can really be justified by Diageo's ROIC (return on invested capital). If market conditions deteriorate further, the premium could come under pressure to adjust. In addition, the uncertain global economic environment may also affect consumer spending, which in turn affects Diageo's results. Exchange rate fluctuations are also an important risk factor for global companies. The appreciation of the US dollar could weaken the profitability of non-US dollar markets, while the weakness of the pound could affect its procurement costs.

Overall, the fall in the FTSE 100 is not a fluke, but a combination of factors. From the perspective of individual stocks, the problems faced by enterprises such as tariffs, regulation, industry competition, and macroeconomic factors are still continuing, putting greater pressure on market confidence. Investors in financial markets are reassessing the outlook for the British economy, especially after Brexit, and uncertainty over trade policy remains. At the same time, the direction of monetary policy from the Bank of England could also influence stock market performance, with higher interest rates likely to further weigh on corporate profitability if inflationary pressures rise.

It is worth noting that the overall performance of the FTSE 100 index is not completely determined by a single factor, but is affected by a combination of international market dynamics, corporate earnings expectations, monetary policy, investor sentiment and many other factors. In the short term, the index could still face volatility, while long-term investors need to keep an eye on the state of the global economy, the progress of negotiations with the UK's major trading partners, and the ability of companies themselves to adjust. Investors need to be cautious in the current environment and pay attention to further changes in market fundamentals, reasonably assessing the long-term value of individual stocks, rather than relying solely on fluctuations in market sentiment to make investment decisions.