eyeQ: the outlook for British stocks in Q2
Experts at eyeQ have used AI and their own smart machine to analyse macro conditions and generate actionable trading signals. Here, it finds the two main UK indices appear cheap.
1st April 2025 13:02
by Huw Roberts from eyeQ
“Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance.” eyeQ
- Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
iShares Core FTSE 100 ETF (ISF)
Macro Relevance: 66%
Model Value: 853.81
Fair Value Gap: 1.19%
iShares FTSE 250 ETF (MIDD)
Macro Relevance: 75%
Model Value: 1,855.11
Fair Value Gap: -1.91%
Data correct as at 1 April 2025. Please click glossary for explanation of terms. Long-term strategic model.
After years of being the laggard, UK equities enjoyed a decent Q1. The FTSE 100 rose around 5% during a time when the S&P 500 fell by roughly the same amount.
Mainstream media assigns this to the rotation out of the US and towards international stocks. One version of events is that the UK offers a relative safe haven among all the fears around tariffs, although how that story fares tomorrow with President Trump’s “Liberation Day” will be a significant test of that narrative.
So, as Q2 gets under way, what’s the outlook for British stocks from the macro perspective?
It is important to distinguish between the FTSE 100 (using the iShares Core FTSE 100 ETF GBP Dist (LSE:ISF)) and the FTSE 250 (using the iShares FTSE 250 ETF GBP Dist (LSE:MIDD)).
ISF has decent macro relevance (66%) and the uptrend in macro momentum continues to look strong. eyeQ model value rose 2.8% in March and is up 5.8% in 2025. Macro conditions have continued to improve over March even as global equity markets have wobbled.
The result is ISF sits 1.2% cheap to the macro environment. Not enough to fire a bullish signal but it is a constructive outlook.
Source: eyeQ. Past performance is not a guide to future performance.
The opposite is true for the FTSE 250. eyeQ model value for MIDD is down 3.8% year-to-date; the deterioration in macro conditions accelerated in March with model value falling 4.4% last month.
The consolation is that the market has fallen even further and sits 1.9% cheap to model. That’s not quite a big enough valuation gap to turn the machine bullish but, even more importantly, we’d need to see model value stop falling before any bullish signal was considered.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
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