A close look at this week’s trending topic
Market drivers to watch in the second half of 2025
Global equities have returned to all-time highs as markets enter the second half of 2025. Over the past six months, investors have contended with shifting policy, swings in sentiment, and geopolitical events. Yet, beneath the surface, the outlines of a more constructive environment are forming.
We see five key factors that we expect to drive investment outcomes in the months ahead:
First, US trade and fiscal policies are gradually taking shape. While the expiration of the US “reciprocal” tariff pause and legal debates around the basis for tariffs risk near-term volatility, we expect the final contours of US trade policy to become clearer in the weeks ahead. Meanwhile, Treasury and legislative actions, including the likely passage of the One Big Beautiful Bill Act, should provide greater clarity on fiscal policy. Elevated tariffs and persistent deficits may periodically unsettle markets, but we do not expect them to end the broader economic expansion or trigger a sustained market drawdown.
Second, geopolitical risk remains a feature of the current environment. Ongoing conflicts in the Middle East and Eastern Europe pose tail risks. The challenge for investors is how to effectively diversify and hedge the risk of further escalation.
Third, we expect interest rates and bond yields to fall. The Federal Reserve has been on hold all year, but we expect it to resume cutting in the second half. We believe lower rates, lower growth, slower inflation, and “safe-haven” flows will lead to lower high grade bond yields by year-end.
Fourth, we expect further US dollar weakness. After a significant decline in the first half, the pace of further depreciation may moderate, but we expect the longer-term trend of “de-dollarization” to persist.
Finally, we believe structural growth trends—particularly artificial intelligence, power and resources, and longevity—will continue to drive equity market returns, supported by further innovation, adoption, and monetization in the second half and beyond.
Against this backdrop, we recommend that investors align portfolios with these key drivers while managing the risk of renewed volatility.
For those underallocated to equities, progressively increasing exposure to diversified global stocks or balanced portfolios can help position for stronger potential returns in the years ahead.
We also recommend deploying cash into quality bonds and diversified income strategies, which can help enhance yield and improve income durability, and considering hedges or diversification to reduce excess dollar holdings.
Finally, we view gold as an effective hedge against geopolitical risks, while hedge funds and private markets can provide alternative sources of portfolio returns.
For more details read the CIO Monthly Letter "Five things to watch in the second half."
Also see our: 2H outlook: Action amid uncertainty
From the studio
Video: Five things to watch in the second half, with CIO's Kiran Ganesh(3:16)
Video: CIO mid-year checklist– your next portfolio steps, with CIO's Jon Gordon (5:50)
Podcast: Jump Start – Key deadlines for US trade and fiscal policy, US-Iran talks, and jobs data (5:02)
Questions for the week ahead
Questions for the week ahead
Will we see more clarity on US trade and fiscal policy? Two key deadlines are approaching. First, President Trump is pushing to get the One Big Beautiful Bill Act over the finish line before the Independence Day holiday on 4 July. The second deadline is the expiration of the 90- day tariff pause, just over a week away at the time of writing. Investors will be hoping for renewed progress on trade relations in the coming days. Regarding US fiscal policy, markets seem to be resigned to a bill that expands US debt over the coming decade.
Will relations between the US and Iran improve? The US had been scheduled to hold talks with Iran over a more lasting solution to its conflict with Iran. After an exchange of hostile rhetoric late last week between the leaders of the two nations, the outlook remains unclear. Investors will be hoping for signs that diplomatic efforts can resume, lowering geopolitical risks.
Could upcoming economic data add to hopes for an earlier Fed rate cut? Fed officials sent mixed signals last week on the timing of potential rate cuts. Governor Bowman suggested that easing could come sooner than expected, while Chair Powell emphasized the need for patience, indicating the Fed may wait for more evidence before acting. This week, investors’ focus will turn to key economic data releases—including nonfarm payrolls, ISM data, and JOLTS job vacancy figures— to see if these numbers could tilt the Fed toward an earlier cut or reinforce Powell’s call for patience.