The FTSE 100 dropped on Tuesday as investors rotated out of stocks amid rising tensions in the Middle East. Markets will also have one eye on tomorrow’s Federal Reserve interest rate decision and any shifts in the trajectory for US rates.

While investors showed signs of taking a ‘wait-and-see’ approach to the most recent Iran-Israel escalation yesterday, Tuesday brought a wave of selling that hit most FTSE 100 shares.

BP and Shell were among the few gainers with oil prices resuming their march higher.

“Markets briefly breathed a breath of optimism yesterday afternoon – but it didn’t last. As tensions between Israel and Iran flared again overnight, that momentary calm quickly gave way to renewed uncertainty,” explained Matt Britzman, senior equity analyst, Hargreaves Lansdown.

“Oil and gold prices, which had dipped on hopes of de-escalation, are climbing once more. President Trump’s urgent call for an immediate evacuation of Tehran jolted investors back into risk-off mode.”

In addition to developments in the Middle East, investors were contending with the very familiar concern about what Fed Chair Jerome Powell will say at his press conference following tomorrow’s interest rate decision.

Most FTSE 100 shares were trading negatively at the time of writing, with names such IAG and Legal & General among the worst hit. The selling was relatively contained suggesting a mild trimming of positions as opposed to panic selling.

Legal & General shares dropped 1.4% after the group issued targets for its asset management business.

Ashtead shares fell despite releasing a very respectable set of results. For all the concerns about tariffs and the impact on the US economy, plant hire company Ashtead is showing signs of revenue stabilisation, and EBITDA actually increased in the quarter ended 30th April.

“Ashtead has always been an interesting way for UK investors to get exposure to US economic growth, and it has certainly delivered impressive returns over the last decade,” said Chris Beauchamp, Chief Market Analyst at IG.

“After nearly halving from last December’s highs the shares seem to have found their footing, and while a US recession remains the major risk to the growth story there is still a lot to like in this morning’s numbers.”

The minor drop in Ashtead shares is likely the result of wider market concerns, rather than any issues with their update.

RC Fornax shares sank on Tuesday after the defensive services group cautioned the UK government’s Strategic Defence Review would curtail demand in the short term, leading the company to warn of soft revenues.

The RC Fornax share price was down around 40% at the time of writing.

In April, the UK Investor Magazine warned investors to avoid RC Fornax due to a high valuation and weak revenue growth. We didn’t, however, expect the highly concerning update from RC Fornax this morning.

Today’s drop brings shares back to a more sensible level on a valuation basis, but there are still major concerns about the outlook for the business.

RC Fornax’s disappointing sales guidance reflects the unintended consequences of the government’s Strategic Defence Review, which has paradoxically weakened short-term demand despite promising long-term opportunities for the AIM-listed defence consultancy. Such reviews should be seen as an opportunity for growth, and RC’s warning suggests poor decision-making and a lack of forward thinking.

The company now expects FY25 revenue of just £4.0 million, significantly below market expectations, as existing and prospective customers have delayed or reduced spending whilst assessing their requirements following the review’s 62 recommendations.

Management had mistakenly believed their diversified tier-1 customer base would prove resilient ahead of the SDR’s publication in June.

Leadership Shake-up Exposes Sales Weaknesses

The revenue shortfall has been compounded by internal failings, with COO and Co-Founder Daniel Clark departing after the newly expanded sales team failed to convert a robust pipeline into contracts. Several deals anticipated for FY25 have now slipped to FY26, highlighting the challenges of scaling commercial operations following the company’s recent IPO.

RC Fornax has responded with significant organisational restructuring, including hiring an experienced sales director to align commercial efforts with engineering capabilities better.

The company maintains it holds sufficient cash reserves of £2.6 million to meet working capital requirements. However, there will be a concern that the minimal cash levels and the prospect of low cash inflows will leave them unable to invest in opportunities. This is not a place a company wants to be so soon after listing.

Whilst increased customer engagement since the SDR’s publication offers hope—including renewed discussions with major contractors and a potentially significant partnership opportunity—the immediate outlook remains challenging as the defence sector navigates budget uncertainty created by the Government’s strategic overhaul.

RC Fornax shares could go lower.

Capita shares dipped on Tuesday after the outsourcing group reaffirmed financial guidance, announced an uptick in contract wins, and outlined the use of AI agents.

The drop in shares was most likely the result of profit taking after a strong run in the stock, as opposed to any major disappointment with the release.

Capita shares were down 3% at the time of writing.

Capita has reiterated its 2025 financial guidance, expecting broadly flat revenue with operating margin improvements weighted to the second half. The business services group continues to anticipate becoming free cash flow positive by year-end.

The company is making significant strides in artificial intelligence deployment. It was among the first European firms to use Agentforce AI, powered by Salesforce, for volume recruitment – slashing the hiring process from weeks to hours. This marks Capita’s initial foray into “agentic AI”, with over 100 such opportunities identified across the group.

Chief Executive Adolfo Hernandez highlighted exponential growth in client interest for agentic AI solutions. “We are reinvesting a portion of our efficiency savings into new technology solutions, particularly those underpinned by AI,” he said.

The newly established Capita AI Catalyst Lab has identified over 200 use cases across all business areas. Five AI products have launched, with another five in detailed testing. The company is using itself as “client zero” to test solutions before customer rollout.

Internal AI adoption includes Microsoft Copilot generating 150,000 monthly interactions and a ServiceNow transition supporting 25,000 colleagues. Over 10,000 digital learning courses have been completed through the company’s AI, Data and Technology Academy.

Capita remains on track to deliver £250 million in annualised cost savings by December 2025, having achieved £185 million as of mid-June. The group maintains confidence in its medium-term operating margin target of 6-8%.

The FTSE 100 was firmly higher on Monday as the escalating conflict in the Middle East kept oil prices at elevated levels, providing support for oil majors BP and Shell.

London’s leading index was 0.4% higher at the time of writing, with Entain topping the leaderboard following an upgrade to full-year guidance for its US joint venture with MGM.

After weakness going into the weekend, most FTSE 100 shares were higher, and US futures were pointing to a stronger start to cash trading.

“European shares were surprisingly resilient against a backdrop of uncertainty,” said Russ Mould, investment director at AJ Bell. 

“Helping to prop up FTSE 100 was continued strength in oil prices as tensions remained high in the Middle East. Crude oil rose 1.1% to $72 per barrel, driving shares in FTSE heavyweights BP and Shell and taking the broader market upwards in the process.

“Global oil prices jumped last week after Israel attacked Iran, raising concerns about major disruptions to supply. Despite a weekend of violence between the two countries, investors showed no signs of panicking, judging by movements in financial markets on Monday. Future prices imply a positive day for Wall Street when US markets open later on.”

Some analysts have predicted oil could rise above $100 a barrel if the conflict continues. Oil prices at $70 will be welcomed by investors in oil-producing stocks, but many will be buying oil shares today to position themselves for a spike in oil prices towards $100, a level that has previously yielded bumper cash flows for companies such as BP and Shell.

However, the current oil market dynamics mean there will have to be a significant uptick in disruption to cause any lasting bid in oil prices.

“Despite the spike, the oil market wasn’t structurally tight heading into this event. Global demand remained firm, and OPEC+ had been limiting supply, but spare capacity was ample,” explained Lale Akoner, global market analyst at eToro.

“Iran, for instance, produces around 3 million barrels per day (~4% of global output), and OPEC holds roughly 4 million barrels per day in spare capacity, mostly in Saudi Arabia. That buffer significantly reduces the risk of a sustained oil price shock from isolated disruptions.”

Oil prices trading slightly negatively at the time of writing on Monday reflect the ability for oil-producing countries to ramp up output if called upon.

Entain was the FTSE 100’s top riser after BetMGM, its joint venture with MGM Resorts, increased its guidance for net revenue to $2.6bn from the previous range of $2.4bn – $2.5bn. EBITDA is now expected to be $100m.

Entain shares were over 11% higher at the time of writing.

“The latest update from Ladbrokes owner Entain revealed why the US is seen as the promised land for UK gambling outfits as its BetMGM joint venture came up trumps,” Russ Mould said.

“The momentum seen in the first three months of the year has continued into the second quarter and, from just about inching into profitability, Entain now sees a meaningful profit coming from the venture. The upgraded guidance lends credibility to its longer-term ambitions for earnings from the venture, too.”