🇬🇧 London’s IPO Drought and the Hunt for the UK’s Real Winners

Quote of the week: “The stock market and economy are two different things.” Milton Friedman

The UK is a great example of the fact that the stock market and the economy often head in different directions. The UK’s headline FTSE 100 index has hit a new record high every month since June, despite negative economic news piling up over the same period.

On Wednesday, the UK Chancellor Rachel Reeves will present one of the most nervously anticipated budgets in years. She’ll be attempting to balance the budget and restore business confidence, without breaking election promises, a task that we don’t envy.

This week, we won’t be speculating about the budget, but we will unpack the FTSE 100 vs FTSE 250 divide, the industries driving returns, and why the UK is increasingly a stock-picker’s market heading into 2026.

What Happened in Markets this Week?

Here’s a quick summary of what’s been going on:

🤖 AI Arms race intensifies as Google announces Gemini 3 ( CNBC )

• While investors worry about an AI bubble, market leaders continue to fight for market share.
• Alphabet is aggressively defending its turf against OpenAI with Gemini 3, focusing on "generative interfaces" and reducing prompt friction to close the user gap. This is similar to OpenAI’s GPT 5, which aims to improve the entire process, rather than the model.
• Google also announced the "Antigravity" agent platform, promising better context understanding and task-oriented coding.
• Gemini’s user numbers still lag OpenAI’s, but the gap has narrowed significantly.
• Alphabet and Microsoft enjoy significant advantages in the AI race due to the breadth of their software expertise and distribution.

📈 Nvidia Q3 earnings and sales beat estimates; Q4 sales outlook well ahead of expectations ( Sherwood )

• Nvidia just dropped another monster quarter, crushing Q3 earnings and guiding Q4 sales way above analysts’ expectations.
• Data center demand is still red-hot, with more than $500 billion in future chip orders already booked.
• This puts Nvidia in a league of its own heading into 2026, with Blackwell and Rubin platforms effectively sold out. Supply chain strain is a risk, but the company is signaling it has things under control for now.
• Short - term, this strengthens AI-adjacent names (think hyperscalers, data centers, chipmakers) and adds pressure on cloud giants watching Nvidia muscle deeper into their turf.
• Check out some of the latest narrative updates on Nvidia from our community, which take this news into their fair value estimates.

🏠 Home Depot cuts guidance as home improvements slow down ( WSJ )

• Home Depot missed earnings for the third straight quarter and cut its full-year outlook. Shares dropped 6% as the retailer cited weak demand and a lack of storm-related sales.
• This suggests consumer confidence is weakening, but homeowners may also be delaying planned improvements until rates are lower.
• Home Depot was previously a beneficiary of higher rates as consumers elected to renovate rather than move. That cycle is now over, and the sector is waiting for lower rates.
• A significant portion of the miss was attributed to lower-than-usual hurricane activity, highlighting the company's reliance on weather-related repair cycles.
• The company is leaning heavily into the "Pro" market (contractors) via acquisitions like SRS Distribution to offset the slump in DIY spending.
• With the stock down 13% YTD while the S&P 500 is up, value investors may look for an entry, but the stock may remain “ dead money ” until a catalyst (like lower rates) materializes.

🇮🇳 India’s goods trade deficit hits record high as gold imports surge 200% ( CNBC )

• India’s goods trade deficit was hit with a "double whammy" in October. Exports fell 8.5% as Donald Trump’s 50% tariff went into effect. At the same time, India’s demand for gold, which was already surging, got an extra seasonal boost as the country’s wedding season began.
• Trade deficits create risks for emerging economies as they can lead to structurally weak currencies. This increases borrowing costs and import costs.
• Ultimately, India needs a trade deal with the US so that the country can increase exports.

💸 Adobe to buy Semrush for $1.9 billion, sending marketing platform’s shares up 74% ( CNBC )

• Adobe is hoping that better SEO tools will help it stay relevant as AI reshapes digital marketing.
• Semrush stock soared 74% on the deal, while Adobe dipped, reflecting investor skepticism over another big-ticket acquisition after the failed Figma attempt.
• This buy boosts Adobe’s marketing stack, especially with brands shifting ad spend toward AI-powered, performance-driven tools. But it also underscores Adobe’s urgency to keep pace as AI threatens to eat into traditional SaaS growth.
• If Adobe can cross-sell Semrush to its enterprise base, there’s potential upside. If not, it’s another pricey “growth via acquisition” gamble, and the market seems to be thinking the latter is more likely.

⚠️ BlackRock private credit CLO fails key tests as bad loans mount ( Bloomberg )

• One of BlackRock’s private credit CLOs (Collateralized Loan Obligations - yep, the same instruments from the GFC) just flunked key performance tests again, highlighting cracks in the booming $1.7T direct lending market.
• The CLO holds loans to multiple distressed companies, including two recent bankruptcies and a zeroed-out position in Renovo Home Partners.
• BlackRock has waived the fee, which is a rare move that signals just how rough things have been for this portfolio. Repeated over-collateralization test failures and downgraded tranches paint a cautionary tale about underwriting standards during the private credit frenzy of 2021. It’s not a systemic risk yet, but rising loan defaults could ripple across CLO markets if these failures become contagious.
• As we discussed two weeks ago , not all credit is created equal. Investors in private credit CLOs should brace for more downgrades and investigate how much risk they’re really holding.

🇬🇧 The UK Market: Firmly in the Middle of the Global Pack

For UK investors, the last few years have been frustrating - but also rewarding for those who owned the right stocks.

The economic recovery that many anticipated has been underwhelming. But UK and European markets got a somewhat unexpected boost as global investors rotated out of US assets earlier this year.

On top of that, there were some other tailwinds:

• 🇬🇧 Domestic companies like UK Banks have benefited as the GBP gained against the USD
• 💸 Lower valuations and higher dividend yields have made cash-flush businesses attractive, at least on a relative basis.
• 📈 The gold price has rallied, boosting miners, many of which are listed on the LSE.
• 🪖 Defense stocks rallied as Europe and the UK began to commit to increasing defense spending.

✨ Over the last 3 years, though, UK equities' performance has been roughly in the middle of the pack compared to other major markets.

Global Equity Performance: Oct 2022 to Nov 2025 - Simply Wall St

The industries mentioned above have contributed to most of the last 12 months’ performance for the UK market. Prior to that, it was a mixed bag - apart from fairly consistent performance from the global pharmaceutical giants.

UK Sectors: 3-Year Returns - Simply Wall St

⚖️ FTSE 100 vs FTSE 250: Two UK Indexes, Two Very Different Cycles

Over the past 25 years, performance of the FTSE 100 and FTSE 250 indexes has often been quite different - and with good reason.

• The FTSE 100 is made up of mostly multinationals exposed to the global economy .
  • Many are very profitable, with attractive dividend yields, but somewhat mediocre growth.
• The FTSE 250 includes smaller companies (technically midcaps) with a domestic focus, more growth, and more risk.
  • These companies typically benefit when the UK economy is growing and/or interest rates are low, and vice versa.

✨ From 2000 to 2015, FTSE 250 stocks typically outperformed the large caps, though investors needed to tolerate more volatility.

Since then, though, it's been a different story:

So, what’s going on?

There are actually a few reasons behind this underperformance:

• 🌍 UK economic growth has certainly lagged most global economies.

  • This is often attributed to Brexit. Regardless of the cause, growth is lagging. So, the large caps with exposure to international markets have had an easier time growing sales.

• 📅 Rewind 10 years, and midcaps were priced for higher growth.

  • That growth hasn’t materialised, so price multiples have fallen.

• 📉 Midcaps were hammered in 2022 when inflation and interest rates spiked.

  • Higher interest rates weigh on valuations, and inflation eats into the spending power of consumers.

• ⚠️ Over the last few weeks, weaker UK economic data and concerns about interest rates have once again weighed on midcaps.

  • The FTSE 250 sold off sharply, while the FTSE 100 continued making new highs.

• 🧲 There’s also a less obvious reason: The LSE isn’t managing to attract new companies like it did in the past.

🏦 The LSE Is Losing Its Lead: A Virtuous Cycle in Reverse

Not that long ago, London was one of THE financial capitals of the world, but it appears to have lost that edge.

In June, the LSE slipped to #23 in the world in terms of capital raised from IPOs , with just a handful of new listings.

Several high-profile companies, including AstraZeneca and Wise , are considering moving their listings away from the LSE. And, quite a few companies that previously planned to IPO on the LSE have been lured away by other exchanges.

LSE IPOs - Bloomberg

✨ If an exchange can’t attract the most promising new companies, its small and midcap indexes are likely to underperform.

Investors, companies, and entrepreneurs all follow the money:

• Exciting listings and IPOs attract investors and capital, which leads to more liquidity and higher valuations, which in turn attract the leading companies seeking capital.
• When things go right, this is a virtuous cycle - but when an exchange loses its competitive edge, that cycle can easily unwind.

🏭 The Economy: Stuck Between Stagnation and Sticky Prices

In 2024, the UK economy began to look promising.

Inflation ticked lower, and the economy began to expand. But this year it’s been the opposite, with inflation rebounding while GDP growth has fallen back to ~ 0%.

Unemployment is up (slightly for now), and in September, manufacturing production fell the most in two years.

UK Economic Indicators - TradingView

Policy makers have tough choices to make:

• Higher taxes aren’t going to fix the growth problem, and the same applies to spending cuts.
• On the other hand, a pro-growth strategy will result in a bigger deficit - and quite possibly more inflation, higher interest rates, and more interest expense, which adds even more to the deficit.

Most economists expect the Chancellor to make a ‘smorgasbord’ of compromises , including more stealth taxes, i.e., maintaining current tax brackets.

There aren’t easy choices: Bold moves come with risks, while small adjustments are unlikely to improve business confidence or balance the budget.

💡 The Insight: The UK is a Stock-Specific Market

The outlook for the UK market and economy might not look very exciting. But that’s at the aggregate level.

✨ Individual companies, both large and small, may have much better prospects.

We had a quick look at the UK companies with the strongest ‘past performance ’ scores (that is, financial performance rather than share price performance).

• ⛏️ Amongst those 20, 5 were gold miners, which wasn’t surprising.
• But the remaining 15 were incredibly diverse:
  • They included media , construction , technology , software , fintech , mortgages , and professional services firms.
  • Of the 20, half are valued at over £1 billion , while the others range from £650 million all the way down to £12 million .

What does this mean?

In some markets, you can get away with investing in ‘ the whole market ’ or in specific sectors. This has worked particularly well in the US market, where the largest companies are also some of the best performers.

The UK market is quite different. Both the large and midcap indexes include some excellent companies. But they also include cyclical companies and those exposed to the domestic economy.

Future winners could be large or small, and they can be in any sector. Ideally, they should check one or more of these boxes:

• ✅ Global market leader
• ✅ Domestic market leaders in growing or robust industries
• ✅ Small caps with proven business models (an idea is not a business)

If you're looking for ideas, check out the UK Community Narratives page, or simply save the UK screener we mentioned above and adjust any of the criteria to find companies that match your needs!

Key Events During the Next Week

Wednesday

🇦🇺 Inflation Rate (CPI YoY)

• 📈 Forecast: 3.9%, Previous: 3.5%
• ➡️ Why it matters: A rise in inflation pressures the RBA to consider a tighter monetary policy, which typically strengthens the AUD.

🇬🇧 UK Autumn Budget 2025

• ➡️ Why it matters: There are lots of possible outcomes for this budget, which could lead to significant moves for the bond market, the GBP, the overall stock market or specific industries.

🇺🇸 GDP Growth Rate QoQ

• 📉 Forecast: 3.0%, Previous: 3.8%
• ➡️ Why it matters: A slowdown in growth suggests economic cooling, and could tip the FOMC toward more rate cuts in the near term.

🇺🇸 US Core PCE Price Index YoY

• 📉 Forecast: 2.7%, Previous: 2.8%
• ➡️ Why it matters: A slight drop in the Fed's preferred inflation gauge would also support the case for more rate cuts.

Friday

🇨🇦 CA Q3 GDP Growth Rate (Annualized)

• 📈 Forecast: 0.4%, Previous: -1.6%
• ➡️ Why it matters: A return to positive growth suggests economic recovery, which could support a more hawkish BoC stance and strengthen the CAD.

At this stage in earnings season, it’s mostly retailers and cloud software companies reporting, along with a few chipmakers and international companies:

• Alibaba
• Deere
• Analog Devices
• Dell Technologies
• Autodesk
• Workday
• Zscaler
• Zoom Communications
• Kroger
• Dollar Tree

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Simply Wall St analyst Richard Bowman and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.