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The stock market had plenty to digest this week after the latest news about US trade tariffs. On Tuesday (8 July), the Trump administration once again postponed trade tariffs until 1 August, leading to a mixed reaction from market participants.
The pound slipped amid a broader global bond sell-off, and the UK market saw distinct sector shifts. FTSE 100 miners and oil giants proved standout beneficiaries. Shares in Glencore, Shell and BP all jumped between 2% and 3%, largely thanks to hopes that commodity pricing power will improve if global supply chains are disrupted.
Airlines IAG and EasyJet also managed modest gains of around 1.5%. Meanwhile, insurers and housebuilders struggled under renewed growth concerns. Phoenix Group and Admiral each lost roughly 1.5%, while major property trusts such as LondonMetric Property and Land Securities Group suffered similar declines.
Prudential was a slight outlier, ticking higher, but the broad underperformance in financials was clear.
A surprise winner
One name that stood out for me was drinks giant Diageo (LSE: DGE). The Guinness and Johnnie Walker owner rose 2% on the day, continuing a rebound that’s now seen it climb 5.3% in the past week.
This comes as something of a surprise given the stock’s rather depressing year. It’s still down around 23% in 2025, battered by slowing consumer demand and cost inflation. Yet there are signs this could be the start of a broader recovery.
Back in late May, it announced fresh cost-cutting initiatives designed to offset roughly $150m in potential tariff-related hits. The market appears to be warming to this plan. In its latest interim report, revenue came in slightly ahead of forecasts, beating them by 1.43%. However, earnings still missed estimates by 7.9%, despite a small rise to £1.5bn.
Dividends despite the risks
My biggest concern is Diageo’s debt, which steadily increased following the pandemic as high inflation forced tighter budgets. It’s still struggling to bring its debt-to-equity ration down to 1 or less. That remains a notable risk, particularly in a higher interest rate environment.
Despite some improvement, discretionary consumer spending remains under pressure, which could impact sales of top-shelf brands if economic growth stalls again.
Yet for all these risks, I see reasons for optimism. Diageo is one of the world’s most recognisable drinks companies, with powerful brands that have pricing power and global reach. It’s rare to find such a high-quality business trading at a discount of more than 20% year to date.
Plus the dividend yield still stands at 4.2%, comfortably covered by both cash flow and earnings. That suggests the board remains committed to rewarding shareholders even during this challenging stretch.
My verdict
For my part, I think Diageo is beginning to look even more like a compelling opportunity at this valuation. It still has work to do to get its balance sheet in shape and earnings back on track but I think its chances are good — if management can deliver on cost savings and continue leveraging its strong brand portfolio.
Overall, it think it’s still an attractive UK share that’s worth considering in the current market shake-up. As always, I’d see it best held as part of a well-diversified portfolio – ideally alongside more defensive and growth-oriented picks.
