FTSE 100 hits record as pharma poised to play catch up in Q4

European stocks are dismissing the US government shutdown and instead there is a broad rally on Wednesday. The FTSE 100 has made a fresh record high, and the index is being led by healthcare. The sector is higher by more than 4% today,  with large gains for AstraZeneca, which is higher by more than 6%, Hikma pharma and GSK.

This is a strong start to Q4 for the UK index. So far this year, European indices are outpacing the S&P 500, the FTSE 100 is higher by 15% YTD on a dollar basis, and the Eurostoxx index is higher by 13%. The gains are even stronger when converted into pounds and euros due to the weakness of the dollar so far in 2025. The question now is, can the outperformance continue, especially when tech is in demand in the US, and YTD returns for the Nasdaq have caught up with Europe?

An important turning point for the UK healthcare sector

The strong gains for UK pharma stocks today come after Pfizer, the US pharma giant, won a reprieve from Donald Trump regarding tariffs, in return for cutting domestic drug prices. Tariffs is the theme that won’t go away, and when the tariff news is positive, this is good for the FTSE 100 due to its international flavour. Thus, signs that President Trump is willing to forego tariff revenue for domestic pricing deals, is seen as positive for the sector.

The Pfizer news highlights the transactional nature of the President’s tariff policies. Even though he threatened 100% tariffs on pharma imports last week, the Pfizer news shows that deals can still be made. Added to this, the US has unveiled a new drug buying site, TrumpRX, which has also excited investors. It is difficult to see how this new website will impact pharma company revenues, and we think that the tariff reprieve for Pfizer will have a longer term impact on the pharma sector.

AstraZeneca listing news could be good for the UK

The UK’s pharma sector has trailed other sectors like minerals and banks so far in 2025. GSK is higher by 20%, AstraZeneca by 13% and Hikma Pharmaceuticals is lower by 11%. The prospect of tariffs has held back gains in this sector, however, this week could mark an important turning point for the pharma sector in the UK. Firstly, there is a clear precedent for UK pharma companies to negotiate with Trump and lower tariff rates, secondly, AstraZeneca’s news this week that it was switching to a primary listing in the US, and keeping its primary listing in the UK, and maintaining its UK headquarters in Cambridge, should put to bed fears that the second largest company by market capitalization on the FTSE 100 is delisting.

Having a dual primary listing on two of the world’s major stock indices can be a good thing for AstraZeneca, since it could increase its public profile, it could also boost liquidity and enable longer trading hours. There is more opportunity for capital raising, and thus it expands the potential for future investment, solidifying AZ’s position as a major global player in the pharma sector. With AZ’s commitment to the UK being reinforced this week, it could help the company grow, which is beneficial to all AstraZeneca shareholders.

FTSE 100 offers a real alternative to tech

This week’s developments in the healthcare sector leaves another segment of the FTSE 100 poised to outperform in Q4. Along with UK defense firms and miners, which are benefitting from the surge in the price of precious metals, the UK index could find itself as a nice diversifier as the tech stock trend in the US continues to heat up.

US stocks get hit by shutdown fears

Compared to the UK, US stocks are poised to open lower today, as domestic political troubles caused by the government shutdown trigger some volatility. We continue to think that this will be temporary, and that US stocks can continue to rally in Q4. However, this government shutdown will be a key test for Treasuries, can they continue to rally and for yields to fall, when the Republicans and Democrats cannot agree to a new funding bill for the Federal government?

The dollar is faltering once again on Wednesday, as the shutdown halts any hope of the dollar index breaking above the 50 and 100-day smas at 98.0 and 98.30, respectively. Dollar weakness and gold price strength is likely to continue as we move into the final months of this year.

Chart 1: FTSE 100, Rolls Royce, BAE Systems, Fresnillo, Endeavour Mining, Astra Zeneca, and GSK, normalized to show how they move together. As you can see, pharma has underperformed compared to defense and mining firms this year.

Source: XTB and Bloomberg