Midyear Market Commentary: 2025 in Two Acts

Authored by: Chris Vidler, CFP^®, CIMA^®

As we pass the halfway point of 2025, the markets have once again reminded us that uncertainty doesn’t always mean instability. Despite a noisy backdrop—ranging from geopolitical headlines to shifting trade policy—investors who stayed the course were rewarded with strong equity returns, particularly in the U.S.

Let’s rewind to spring. In April, the so-called “Liberation Day” tariffs from the Trump administration introduced new volatility. Initially, markets stumbled, but sentiment quickly turned as most tariffs (aside from those involving China) were paused and trade talks showed signs of progress. In the end, the S&P 500 hit new highs in Q2, with growth sectors like Technology and Communication Services leading the charge—driven by expectations of rate cuts from the Federal Reserve and a continued appetite for innovation-led investing.

Economically, the U.S. continued to exhibit late-cycle characteristics. While headline indicators like employment and consumer spending remained stable, underlying data pointed to a slowdown in momentum. Inflation pressures moderated, and the Federal Reserve maintained a cautious stance, with markets pricing in potential rate cuts in the second half of the year. Globally, the weakening U.S. dollar provided a tailwind for international investments, though performance varied by region. Emerging Asia showed signs of recovery, particularly in high-tech manufacturing, while Europe and other emerging markets faced headwinds from elevated interest rates and commodity exposure.

Looking Ahead: Opportunities with a Side of Caution

As we turn toward the second half of 2025, we’re met with a market environment that’s balanced between continued opportunity and the need for selectivity.

Growth is Cooling, Not Collapsing

The U.S. economy still looks solid but is moving at a slower pace. The recession fears that were top of mind last year have faded for now, supported by strong corporate balance sheets and steady jobs data. Consumer spending has softened slightly, and business investment is more selective, yet overall activity remains constructive.

Inflation and Rates: A Delicate Balance

Inflation has come down meaningfully from post-pandemic highs, though recent tariff adjustments could nudge prices slightly higher again. The Fed seems likely to cut rates one or two times before year-end, but they remain data-dependent. We’re not expecting a full pivot—just a gentle lean toward easing which we think makes sense.

Equities: Mind the Valuations

Markets have had a strong run in 2025, and while we still see room for upside, we believe the path forward will require a more selective approach. Some sectors—think AI, digital infrastructure, and healthcare innovation—are still benefiting from strong tailwinds. But with valuations stretched in parts of the market, quality and fundamentals will matter more from here.

Global Markets: Diverging Paths

International investing remains a mixed bag. Asia is stabilizing, helped by demand in tech manufacturing, while Europe continues to wrestle with slower growth and policy friction. Currency movements and geopolitics are still driving cross-border flows. We believe that the declining dollar will likely stabilize, which could be a headwind to International stocks in the second half of the year.

Portfolio Strategy: Steady, Balanced, and Intentional

All this reinforces what we believe to be a timeless truth: staying diversified and disciplined is key. We’re still constructive on equities but are emphasizing quality and sector balance. Within portfolios, we’re pairing defensive sectors like Health Care with growth-oriented areas that align with long-term innovation trends. And we’re keeping a close eye on opportunities in Small Cap and International markets, especially where valuations are compelling.

We know headlines can be distracting. But history has shown that markets often surprise to the upside when the narrative seems the most divided. As always, thank you for placing your trust in us. For a more in depth look at markets from Raymond James’ Investment Strategy Committee, including a great write up called “Trade Talk and Tariff Truths” we encourage you to look at Raymond James’s Investment Strategy Quarterly publication.

The opinions expressed are those of Christopher Vidler and Eric Van Der Hyde as of the date stated and are subject to change. There is no guarantee that the forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment or security. Information and opinions are derived from proprietary and non-proprietary sources. Opinions are not necessarily those of Raymond James.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. Diversification and strategic asset allocation do not assure profit or protect against loss.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary.