The U.S. stock market is entering the second half of 2025 with significant momentum. After a volatile start to the year, marked by geopolitical concerns and tariff shocks, the S&P 500 and Nasdaq have roared back, both notching fresh all-time highs. The big question now: can this bullish energy continue, or will the second half bring new challenges?
A Strong First Half Recovery
The Nasdaq composite delivered an impressive comeback, surging 4.2% in the week ending June 27—its best performance since mid-May. It capped off June with six consecutive up sessions, closing at a record 20,418. Though it dipped 0.8% to start July, the index rebounded quickly, finishing the shortened trading week at 20,601, up 1.6%.
Since the key follow-through day on April 22—a historically reliable indicator of major market bottoms—the Nasdaq has soared 26%. The S&P 500 has also been on a tear, gaining 3.4% in the last week of June and another 1.7% during the four-day week ending July 4. It closed at a new high of 6,279.
While the large-cap S&P 500 rose modestly on July’s first trading day, its equal-weighted counterpart—the Invesco S&P 500 Equal Weight ETF (RSP)—climbed 1.2%, suggesting improving breadth in the market. The ETF now sits just 1.6% below its November peak.
Political and Economic Backdrop
Adding fuel to market momentum was the passage of President Donald Trump’s “Big, Beautiful Bill” in the House of Representatives. The bill retains key 2017 tax cuts, boosts spending on military and immigration enforcement, and includes significant cuts to Medicaid. Trump is expected to sign the legislation into law on Independence Day.
However, geopolitical risks linger. Tensions with Iran escalated following U.S. strikes on its nuclear sites, and global investors continue monitoring trade negotiations and tariff developments. The market shrugged off a pause in U.S.-Canada trade talks last week, a signal of growing investor resilience.
What Do the Numbers Say?
For the first half of 2025, the S&P 500 rose 5.5%, finishing June at 6,204.95. The Nasdaq mirrored that performance, closing the half at 20,369.73. Meanwhile, the Dow Jones Industrial Average posted a more modest 3.6% gain to 44,094, though it gained 0.9% on July 2 thanks to a bounce in healthcare and industrials.
Economist Ed Yardeni remains bullish, forecasting the S&P 500 could climb to 6,500 by year-end—an additional 4% upside. He sees the market looking beyond 2025, focusing instead on improving global trade conditions and stronger GDP growth in 2026.
UBS Global Wealth Management shares this view, recently raising its 2025 S&P 500 earnings estimate to $265 and its 2026 projection to $285. UBS now expects the S&P 500 to reach 6,500 by mid-2026, reflecting a 5.3% gain from current levels.
But Risks Remain
Despite the rally, risks persist. The OECD recently downgraded global GDP forecasts to 2.9% for both 2025 and 2026, and sees U.S. GDP slowing to 1.6% this year. That’s far more pessimistic than the Atlanta Fed, which estimates Q2 growth at 2.9%.
Inflation has moderated, but not enough to prompt the Federal Reserve to cut interest rates. Homebuilding stocks remain weak, and the U.S. dollar has dropped 7.8% this year, signaling some erosion in global confidence.
Gold and silver prices, meanwhile, have surged amid demand for safe-haven assets. Gold reached $3,509 an ounce earlier this year before pulling back to $3,338, while silver recently traded at $37.04.
Valuations, Earnings, and Sector Watch
Valuations are creeping higher. The S&P 500’s forward P/E ratio stands near 22, above the five-year average of 19.9 and the 10-year norm of 18.4. With earnings expectations elevated, any disappointment could weigh heavily on the market.
FactSet projects Q2 S&P 500 earnings growth of 4.9%—a slowdown from previous quarters. Still, 78% of companies beat Q1 profit expectations, and 64% exceeded revenue forecasts.
Sector-wise, tech, healthcare, and communications are expected to post the strongest profit growth in 2025 at 16%, 14.9%, and 10%, respectively. Energy lags with a forecasted 13% profit decline, though analysts predict a 19.9% rebound in 2026.
Interest Rates and the Debt Watch
Interest rates remain a wild card. The 10-year Treasury yield is currently at 4.34%, down from 4.57% at the start of the year, suggesting strong institutional demand. But the risk of rising yields could dampen equity valuations.
Hedge fund titan Ray Dalio has warned that the U.S. must rein in its budget deficit—now the third-largest federal expense after defense and Social Security—to avoid long-term damage to Treasury bond confidence.
BCA Research has flagged two key risks for the second half: a resurgence in rate volatility and weakening growth expectations. Both could undercut the current equity rally.
Gold Outlook Brightens Amid Global Uncertainty
Gold could surge toward $4,000 an ounce within the next six to nine months, according to a recent client note from Aakash Doshi, head of gold strategy at State Street Global Advisors. Doshi assigns a 30% probability to this bullish scenario, which hinges on specific macroeconomic conditions like persistent stagflation and continued global de-dollarization.
SPDR Gold Shares (GLD) have gained as much as 31% since the start of the year, though they declined 2.9% last week, slipping below their 10-week moving average. Still, GLD is finding support at this intermediate-term technical level. Since late April, the ETF has traded sideways—a further drop from here could indicate a more prolonged correction.
Oil Under Pressure, Despite Recent Geopolitical Tailwinds
Crude oil, in contrast, has struggled to keep pace with other asset classes. Talk of “peak oil” — the theory that global petroleum production has reached or is nearing its peak — has gained traction as renewable energy adoption accelerates. While natural gas remains favored as a transitional fuel, a global supply glut, driven by robust U.S. output and OPEC+ expansion, has kept prices muted.
Even with a rebound from April’s four-year low of $55.12 a barrel, light sweet crude futures remain among the weakest performers. Geopolitical tensions, including the Iran-Israel conflict, have driven recent volatility. On Monday, WTI futures plunged nearly 9%, falling from a session high of $78.40 to $67.26. As of Thursday, August WTI contracts on NYMEX closed at $67.16, marking a modest 0.2% gain for the day but leaving oil down for the year.
Canada, Mexico, and Germany Defy Broader Trade Concerns
While commodity markets remain mixed, equity benchmarks in key U.S. trading partners have posted impressive gains. Canada’s TSX Composite Index reached a new record of 27,034 on Thursday, up 9.33% year-to-date, while Germany’s DAX has soared 20.2% to 23,934.
Market optimism may stem from expectations that U.S. trade relations with allies will normalize sooner than feared, or that the USMCA trade pact is offering a buffer to North American industries.
Chinese Equities Stir From a Lost Decade
After years of underperformance, Chinese markets are showing signs of life in 2025. The Hang Seng Index has climbed nearly 20% year-to-date. Standout U.S.-listed Chinese stocks include Atour Lifestyle (ATAT), a Shanghai-based hotel chain that recently broke out of a technical base to hit $34.23. Another is Qifu Technology (QFIN), a financial services firm whose shares have soared more than 400% since the 2022 bear market low. It reached a new high of $45.80 on Monday and crossed an early trendline buy point at $45.
Still, risks remain. China’s Caixin manufacturing PMI fell to 48.3 in May from 50.4, signaling contraction. Investor sentiment continues to be impacted by a 10% blanket U.S. tariff on all imports, including from China.
U.S. Equities Show Resilience After Spring Shock
Major U.S. indexes have bounced back from a volatile spring. The Nasdaq is up over 5% in 2025 and recently closed above 20,000 for the first time since February. The S&P 500 has surged past 6,000.
The recovery follows a dramatic sell-off in early April, triggered by President Trump’s announcement of sweeping tariffs. From late March to April 7, the NYSE composite tumbled 13%, while the Nasdaq shed 14.5%. At its worst, the S&P 500 dropped 21.3% from its peak, meeting the definition of a bear market. The Dow fell nearly 19%.
Small caps have lagged— the S&P SmallCap 600 was down 8.8% as of May, though it has since trimmed that loss to 6%. The VIX spiked to 60.13 on April 7, its third-highest reading since the pandemic crash in 2020.
Investor Sentiment: From Fear to FOMO?
The April correction triggered a sharp drop in bullish sentiment. The Investors Intelligence survey showed just 23.5% of newsletter writers were bullish at the time, while bearishness peaked at 35.3%. Since then, sentiment has improved, with bulls rising to 38.8% and bears falling to 28.6% as of late June.
A key turning point came on April 22, when both the Nasdaq and S&P 500 registered a follow-through day—a technical sign that institutional investors were reentering the market.
Economic Data: Mixed but Not Alarming
Despite ongoing concerns, the U.S. economy has shown resilience. The ISM manufacturing and services surveys pointed to mild contraction in May, but job growth remains solid. Employers added 139,000 jobs in May, beating forecasts. Consumer spending also appears steady.
“Our base case remains that the U.S. avoids a recession,” wrote Seema Shah, Chief Global Strategist at Principal Asset Management. She noted that their midyear forecast assumed the U.S. would step back from the brink, even before the recent trade truce with China.
Energy Sector Struggles While Tech Leads Again
The energy sector has been the weakest S&P 500 performer in 2025, down as much as 18.9% year-to-date. British oil major BP (BP) continues to lag, with earnings expected to fall 38% in Q2. Shares are down nearly 60% from their all-time high and have slipped below the 200-day moving average, despite merger rumors involving Shell (SHEL).
In contrast, the S&P 500 has climbed over 800% since its March 2009 low, excluding dividends. High-growth tech and AI-linked names are once again driving returns.
The AI Boom Spurs Broader Optimism
Investors have been rewarded for focusing on leaders in AI, semiconductor manufacturing, and software. Companies such as Broadcom (AVGO), AMD, IBM, Dell, Oracle (ORCL), Super Micro Computer (SMCI), and CoreWeave (CRWV) are central to the AI infrastructure story.
UBS analysts recently highlighted a massive AI data center project in Abilene, Texas, as possibly the largest of its kind. With over 2,200 workers onsite, this buildout supports a growing Oracle-OpenAI partnership. The first GPU clusters could be live by Q4, though delays in power equipment and labor availability persist.
Nova (NVMI), a semiconductor equipment firm, has also surged, with a projected 26% jump in 2025 earnings and 50% revenue growth in Q1 alone.
Crypto Adds Fuel to the Risk-On Fire
Bitcoin remains a standout performer, gaining 12.9% year-to-date despite recent pullbacks. Meanwhile, Circle Internet (CRCL), the issuer of the USDC stablecoin, has exploded since its IPO in June. Shares have nearly sextupled from the $31 offering price, briefly hitting $196.90 and pushing its valuation above $44 billion.
Federico Brokate of 21Shares sees Solana as a potential next breakout in the crypto space, citing its scalability and low transaction costs. 21Shares has already rolled out more than 40 crypto-related ETPs across Europe and is eyeing expanded offerings in the U.S.
Looking Ahead: Fed Policy and Inflation Risks
The market is now pricing in a high probability of a Fed rate cut by October. CME FedWatch data shows near certainty of a 25-basis-point cut at the Oct. 29 FOMC meeting. Still, the Fed remains cautious.
“Stronger-than-expected job growth and stable unemployment underline the labor market’s strength,” noted Lindsay Rosner of Goldman Sachs. “This supports the Fed’s patient approach to rate adjustments.”
With AI-driven spending, solid employment data, and easing geopolitical tensions, the backdrop for the second half of 2025 remains cautiously optimistic—even if volatility remains a constant.
Final Thoughts: What to Watch in H2 2025
The second half of 2025 looks promising, but not without caution. The bull market has legs thanks to strong earnings projections, a stabilizing bond market, and the possibility of trade breakthroughs. But elevated valuations, lingering geopolitical risks, and uncertainty around interest rates and tariffs will keep investors on edge.
For investors, the playbook is clear: focus on companies with robust earnings and sales growth, particularly in tech and healthcare, and remain agile as market conditions evolve. The bounce in stocks may still have room to run—but expect some tricky volleys ahead.
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Important Information
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.