European defence companies performed well last week, after a meeting between Ukrainian president Volodymyr Zelenskyy and US president Donald Trump turned sour.

In the aftermath of the talks, several European leaders called for a stronger defence policy and one that’s more independent of the US.

This led to share price spikes for European defence companies, with the likes of Rheinmetall and BAE Systems jumping over 20% on Friday.

While European governments have started talking the talk, they’ll face pressures before being able to fully walk the walk. Growth across much of the continent remains low, with many countries facing fiscal challenges. In order to increase defence spending significantly, cuts will likely have to be made elsewhere.

In the UK, for example, the government announced plans to reduce the foreign aid budget. UK Chancellor Rachel Reeves also announced plans to change the remit of the National Wealth Fund to allow spending on defence. Reports have also emerged that money currently earmarked for ‘green’ projects will now be spent on defence instead.

While all this is helping boost defence stocks in the short term, looking further ahead, Hetal Mehta, SJP’s Head of Economic Research notes: “Defence spending is less likely to be economically productive for an economy’s long term output potential. This might be hard to measure in the near term, but if we’re still talking about the productivity puzzle in years to come, this could serve to make the situation worse.”

Even without the jump in defence companies, there were some bright spots across Europe. In Germany, markets reacted well to the election results from the prior weekend. This saw Friedrich Merz’s conservative Christian Democratic Union (CDU) party earn the most seats. Without a majority, he is looking to form a coalition with the centre left Social Democrat party.

Commenting on the election, Martin Skanberg, fund manager for European Equities at Schroders said: “There has been consensus building for some time that Germany needs reforms to increase its competitiveness, although the specifics of this will take some time to be negotiated. Merz’s CDU has indicated an intention to drive through reforms and pursue a pro-growth agenda, which should be good for German corporates.

“German equities had been underperforming the rest of Europe in recent years, but that pattern changed in late 2024 and the stronger performance of German equities has continued into 2025. Hopes of reform could lead to an increase in positive sentiment towards German equities, and Europe more broadly.”

Turning to the UK, the FTSE 100 had a positive 5 days, after prime minister Kier Starmer and president Trump held seemingly productive talks. The outcome of these talks suggests the UK might avoid US tariffs, potentially positioning the country well for the next four years.

The same couldn’t be said for other countries, with Trump outlining planned tariffs for Mexico, Canada, China and the EU over the past seven days.

It was the turn of the US markets to struggle last week. Thursday was a particularly tough day for tech stocks, with Nvidia dropping over 6%, and smaller falls across the rest of the Magnificent Seven. This came despite Nvidia posting relatively strong results that day, however, investors noted a slip in margins.

In general, though, US markets were spooked by the continued talk of tariffs and weakening economic data.

The latter point included surveys pointing to falling consumer sentiment as well as an unexpected drop in consumer spending in January.

Many of us will face bigger tax bills this year. With the personal allowance frozen until 2027/28, plus the additional rate threshold having dropped to £125,140, more of us will find ourselves in a higher tax band, particularly if we’re lucky enough to get a pay rise or bonus. Added to this, the chancellor used her Autumn Budget to announce that the £40 billion ‘black hole’ in the nation’s finances would be addressed by rises in Capital Gains Tax, Inheritance Tax and employee National Insurance contributions for businesses.

This means you may need to invest more just to stay on track towards your long-term goals.

It’s more important than ever that your financial plan makes full use of pension and ISA allowances to make every penny count.

Of the two, personal pensions are still the most tax-efficient for long-term investing, since the basic-rate tax relief guarantees you a 20% cash boost from the government on contributions you make (subject to certain limits).

Those are powerful persuaders for why a pension should be part of your overall long-term financial planning.

There is a £60,000 annual allowance for pensions contributions. This covers any contributions you make personally, and those made by your employer. In addition, tax relief on your personal contributions is limited to the higher of 100% of your earnings in the tax year and £3,600, but that’s still a great tax incentive. Plus, you can access a personal pension from age 55, though this is set to rise to 57 in 2028.

On the other hand, ISAs offer a tax-efficient, simple and flexible way to save.

Since you don’t pay tax on the interest from a Cash ISA or capital gains from a Stocks and Shares ISA, you don’t need to declare them on your tax return. You keep any interest or profit you earn. You can invest a maximum of £20,000 per tax year in an ISA or combination of ISAs, so you could put half in a Cash ISA and half in a Stocks and Shares ISA.

Unlike pensions, ISAs have no age restrictions to access your money. That flexibility means you can have cash ready for rainy day emergencies, as well as for other goals you might be saving for, like a summer holiday or new car.

Using a combination of pensions and ISAs is a smart way to plan for money you might need in the short-term, and investments you might need in later life.

An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

Schroders is a fund manager for SJP.