FTSE 100 at a new high📈 Those 3 sectors are powering UK stocks

UK FTSE100 index hit historic high yesterday, driven by mining and metals sectors and aerospace & defense.  London stocks are slightly lower today, with the FTSE 100 expected to give back a small portion of its strong year-to-date run after hitting fresh records on Tuesday 30 December. The rally in 2025 has been powerful. The FTSE 100 is up roughly 22% year-to-date, following a more modest appx. 5% gain in 2024.

• Precious metal miners have been standout winners, led by Fresnillo, which is up roughly five-fold this year on the back of surging commodity prices. Fresnillo also hit a record high on Tuesday, underscoring how dominant the metals theme has been.

• Aerospace and defence stocks have enjoyed a strong year, with Babcock and Rolls-Royce roughly doubling and BAE Systems up around 50%. The sector remains supported by broader geopolitical trends and rising defence spending.

• UK banks have also contributed significantly to performance: LLoyds and Barclays gained almost 80% while Standard Chartered and HSBC gained 85% and 50% respectively

Will FTSE100 outperform UK mid and small stocks?

• 2026 is increasingly looking like another year where the FTSE 100 beats the FTSE 250. The large-cap index has the wind at its back, while UK-focused mid-caps face a tougher domestic backdrop.

• The performance gap is already massive. Over the last five years, the FTSE 100 is up roughly 50%, around five times more than the FTSE 250.

• The “UK reopening” story that helped the FTSE 250 in 2021 is gone, back then, the domestically-driven index benefited from post-lockdown momentum — but heading into 2026, there’s no similar feel-good catalyst.

• Both indices show similar earnings growth expectations (~9%), but the risk profile isn’t equal, the FTSE 250 looks more exposed to earnings downgrades given signs of weakness in the UK economy.

• UK consumer data is a warning signal; Barclays data suggests UK households are entering 2026 on a weaker footing, which doesn’t bode well for the more domestic FTSE 250.

• The FTSE 100’s structure is simply more attractive right now; it leans more international and defensive (with sectors like health care), which tends to hold up better when economic momentum softens.

• Even for mid-cap exposure, the FTSE 250 doesn’t stack up well versus Europe, the index lags European peers in expected earnings growth next year.

• Bloomberg Intelligence expects FTSE 100 earnings momentum to stay stronger than the Stoxx 600, which strenghthens the case for large-cap UK exposure vs broader Europe.

• Mining exposure is a major wildcard advantage for the FTSE 100, and if metals keep rallying, FTSE 100 names may benefit disproportionately. Fresnillo has already surged ~450% year-to-date, underlining how powerful this theme can be.

• Rising global defense spending continues to favor names like BAE Systems and Rolls-Royce, adding structural support to the FTSE 100.

• Limited room for BOE cuts is a tailwind for FTSE 100 banks. That setup tends to favor bank-heavy exposure, while it works against the FTSE 250’s heavier weighting in interest-rate-sensitive real estate.

UK100 (D1 interval)

Source: xStation5