2025 Mid-Year Outlook and Expectations

In early April, as the S&P corrected below 5000, numerous market experts suggested that a future market rebound would be different than what we have seen in the recent past. The level of uncertainty inherent in the market at that time was palpable. It was also proving to be extremely difficult to “handicap” the impact of universal tariffs & trade negotiations. So much so that many of these experts suggested that we would not see a classic “v-shaped” recovery.

Fast forward to the end of June, where markets are now testing their all-time highs (S&P trading above 6100), fueled by a combination of factors that many felt would not coordinate quite so beneficially. Take the Russell 3000 Index as an example (which represents the 3000 largest companies in America or 98% of the American public equity market). Over 80% of the Russell 3000 constituents are trading above their 50-day moving average pricewise. This suggests that this “unloved” bull market that we are in is indeed intact (at least for the moment). I suggest “unloved” because many investors have “sat out” this recent recovery. Fear of the aforementioned uncertainty caused many investors (and institutions alike) to remain defensive and even predominately in cash. Despite softer than expected GDP in Q1, general economic conditions remain surprisingly solid. The consumer remains employed (low unemployment), inflation continues to trend better, saving rates have increased, and AI investments remain at all-time highs. These factors should continue to fuel equities that participate in this powerful developing investment theme.

Resilient might be the best way to describe the stock market so far this year. In the face of two geopolitical crises (Russia/Ukraine & Israel/Iran), the US equity markets tested all-time highs. Simultaneously, international equity (& debt) markets have been additive in ways we haven’t witnessed in a while.  The MSCI-EAFE Index (a measure of developed Europe, Australia & the Far East) has been up a little over 18% year-to-date. The DAX market (the German stock exchange) has been quietly up over 33% year-to-date. Now compare these to the S&P 500 which is up over 5% halfway through this year. As we have always espoused, remaining globally diversified is important – this year particularly demonstrating the benefits of this strategy. In fact, the three-year return for the MSCI-EAFE Index now exceeds the returns of the S&P 500 over the same time period.

As we move into the second half of 2025, the question remains how does the rest of the year play out? This question is difficult. As pointed out, on the one hand, we have reasonable conditions, and momentum is trending in the right direction. Yet on the other hand, many of the very components that comprised the recent market uncertainty could still have a negative impact in the nearer term. Corporate leadership has voiced their concern over the challenges that uncertainty plays with regard to their future planning. Thus, some plans have been slow and cautiously initiated or even postponed. Many corporations that faced tariff increases “pulled forward” Q2 purchases in Q1. And it is difficult to predict how this pull forward of purchases plays out in the coming months? We suspect that corporate guidance will be mixed as CEOs and CFOs attempt to evaluate their prospects for future revenues and earnings. Several experts have suggested that this investment climate uncertainty has to impact markets at some point.

For now, we continue to stress the importance of global diversification. The odds of a rate cut at the September 18^th Federal Open Market Committee (FOMC) meeting have increased substantially. Potential interest rate cuts combined with some form of tax cuts represented in President Trump’s recent bill should be helpful to the markets. And as already mentioned, the Artificial Intelligence investment theme seems very much intact. Given that companies like Meta, Microsoft, Amazon, Nvidia & alike are all at the forefront of these significant investments, this dynamic should continue to help the prospects of large cap, growth stocks. Often a prominent position and weight in diversified growth portfolios. Earnings have held up but will need to continue to hold up over the current earnings season (the next month or so) for the positive results to continue. Nevertheless, despite contending with high levels of uncertainty, there remains reason to be cautiously optimistic about a constructive market environment over the balance of the year.