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After a volatile start to the year—driven by geopolitical tensions and unexpected tariff shocks—the S&P 500 and Nasdaq have rallied sharply, reaching fresh all-time highs. The big question now: can this bullish momentum continue, or will new challenges emerge in the second half?
The Nasdaq Composite staged an impressive comeback, gaining 4.2% in the week ending June 27—its best weekly performance since mid-May. It ended June with six consecutive gains, closing at a record high of 20,418. After a brief 0.8% dip to start July, it quickly rebounded, finishing the holiday-shortened week at 20,601, up 1.6%.
Since April 22—a key follow-through day historically known to signal market bottoms—the Nasdaq has surged 26%. The S&P 500 also performed strongly, rising 3.4% in the final week of June and another 1.7% in the four-day week ending July 4, closing at a new record of 6,279.
While the large-cap S&P 500 made a modest gain on July’s first trading day, the equal-weighted version—Invesco’s S&P 500 Equal Weight ETF (RSP)—rose 1.2%, signaling broader market participation. RSP is now just 1.6% below its November peak.
Fueling market optimism was the House of Representatives’ approval of former President Donald Trump’s “Big and Beautiful” bill. The legislation preserves key 2017 tax cuts, boosts defense and immigration enforcement spending, and includes major cuts to Medicaid. Trump is expected to sign it on Independence Day.
Still, geopolitical risks remain. Tensions with Iran escalated following U.S. strikes on nuclear facilities, and investors continue to monitor trade negotiations and tariffs. Notably, markets shrugged off a pause in U.S.-Canada trade talks—evidence of growing investor resilience.
In the first half of 2025, the S&P 500 rose 5.5%, closing June at 6,204.95. The Nasdaq posted a similar gain, ending June at 20,369.73. The Dow Jones Industrial Average saw a more modest 3.6% rise to 44,094, though it added 0.9% on July 2, driven by gains in healthcare and industrials.
Economist Ed Yardeni remains bullish, predicting the S&P 500 could reach 6,500 by year-end—about 4% higher. He believes the market is already looking past 2025, focusing on improved global trade and stronger GDP growth in 2026.
UBS Global Wealth Management echoed this optimism, recently raising its S&P 500 earnings forecast to $265 for 2025 and $285 for 2026. They now expect the index to hit 6,500 by mid-2026—a 5.3% gain from current levels.
Despite the rally, risks remain. The OECD recently downgraded global GDP growth forecasts to 2.9% for both 2025 and 2026. It expects U.S. GDP growth to slow to 1.6% this year—far below the Atlanta Fed’s estimate of 2.9% for Q2.
Inflation has moderated, but not enough to justify Fed rate cuts. Homebuilding stocks remain weak, and the U.S. dollar has fallen 7.8% this year, hinting at some erosion in global confidence.
Gold and silver prices have surged amid demand for safe-haven assets. Gold peaked at $3,509/oz earlier this year before pulling back to $3,338. Silver recently traded at $37.04.
Valuations are climbing. The S&P 500’s forward P/E ratio is nearing 22—above the five-year average of 19.9 and the 10-year average of 18.4. With lofty earnings expectations, any disappointment could hit the market hard.
FactSet expects S&P 500 earnings to grow 4.9% in Q2—slower than in recent quarters. Still, 78% of companies beat earnings estimates in Q1, and 64% exceeded revenue forecasts.
By sector, technology, healthcare, and communications are expected to lead 2025 earnings growth at 16%, 14.9%, and 10%, respectively. Energy is forecast to decline 13%, though analysts anticipate a 19.9% rebound in 2026.
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. However, any yield spike could pressure equity valuations.
Ray Dalio, founder of a major hedge fund, warned that the U.S. must control its budget deficit—now the third-largest federal expenditure after defense and Social Security—to preserve confidence in Treasury markets.
BCA Research highlights two key risks for the second half: a resurgence in rate volatility and weakening growth expectations. Both could threaten the current market rally.
Gold could approach $4,000/oz in the next 6–9 months, according to State Street strategist Aakash Doshi. He assigns a 30% chance to this bullish scenario, hinging on macro conditions like persistent stagflation and global de-dollarization.
The SPDR Gold Shares ETF (GLD) is up as much as 31% year-to-date, though it fell 2.9% last week, dipping below its 10-week moving average. GLD continues to find technical support, but a breakdown could signal a longer correction.
Oil prices have struggled despite geopolitical tensions. The “peak oil” theory—that global production has peaked—is gaining traction amid the energy transition. Natural gas remains the preferred bridge fuel, but global oversupply is weighing on prices.
After bouncing from a four-year low in April ($55.12), WTI crude futures are still among the worst-performing assets. On Monday, prices fell nearly 9%, from an intraday high of $78.40 to $67.26. As of Thursday, August contracts on NYMEX closed at $67.16, up 0.2% on the day but down for the year.
While commodity markets are mixed, the stock indexes of major U.S. trading partners have posted solid gains. Canada’s TSX hit a record 27,034 on Thursday, up 9.33% year-to-date. Germany’s DAX is up 20.2% to 23,934.
This optimism may reflect hopes that trade ties with allies will normalize sooner than expected, or that the USMCA deal is cushioning North American industries.
After years of underperformance, Chinese markets are showing signs of recovery. The Hang Seng Index is up nearly 20% YTD. Among U.S.-listed Chinese stocks, standouts include Atour Lifestyle (ATAT), a Shanghai-based hotel chain, and Qifu Technology (QFIN), a fintech firm whose shares are up more than 400% since 2022 lows.
Still, risks linger. The Caixin manufacturing PMI fell to 48.3 in May from 50.4, indicating contraction. Investor sentiment remains fragile, especially with a new 10% blanket tariff on all U.S. imports—including from China.
Major U.S. indexes have bounced back from a volatile spring. The Nasdaq is up over 5% YTD and recently topped 20,000 for the first time since February. The S&P 500 crossed the 6,000 mark.
The rebound follows a sharp selloff in April, triggered by Trump’s new tariff announcement. Between late March and April 7, the NYSE dropped 13%, the Nasdaq 14.5%, and the S&P 500 plunged 21.3%—entering bear market territory. The Dow fell nearly 19%.
Small caps have lagged: the S&P SmallCap 600 was down 8.8% through May, though it has trimmed losses to 6%. The VIX spiked to 60.13 on April 7—its third-highest reading since the pandemic.
April’s correction triggered a sharp drop in bullish sentiment. The Investors Intelligence survey showed only 23.5% of advisors were bullish, while 35.3% were bearish. Sentiment has since improved: bulls rose to 38.8%, and bears dropped to 28.6% by late June.
A turning point came on April 22, when both the Nasdaq and S&P 500 registered follow-through days—technical signals that institutional investors were re-entering the market.
Despite concerns, the U.S. economy has remained resilient. May’s ISM surveys for manufacturing and services showed slight contraction, but job growth remains strong. Employers added 139,000 jobs in May, beating expectations. Consumer spending remains steady.
“Our base case remains that the U.S. avoids recession,” wrote Seema Shah, Chief Global Strategist at Principal Asset Management. She noted that the midyear forecast assumed the U.S. would step back from the edge—even before the recent trade truce with China.
Energy is the worst-performing sector in the S&P 500 this year, down as much as 18.9%. BP (BP) has lagged, with Q2 earnings expected to drop 38%. Shares are down nearly 60% from their all-time high, despite merger rumors with Shell (SHEL).
By contrast, the S&P 500 has surged over 800% since its March 2009 low (excluding dividends). Tech and AI-related companies are once again leading the charge.
Investors have been rewarded for backing leaders in AI, semiconductors, and software. Companies like Broadcom (AVGO), AMD, IBM, Dell, Oracle (ORCL), Super Micro Computer (SMCI), and CoreWeave (CRWV) are central to AI infrastructure.
UBS analysts highlighted a massive data center project in Abilene, Texas—the largest of its kind. It underpins a growing Oracle-OpenAI partnership. The first GPU clusters are expected in Q4, although delays in equipment and labor persist.
Nova (NVMI), a semiconductor equipment firm, has also gained, with projected earnings growth of 26% in 2025 and 50% revenue growth in Q1.
Bitcoin remains a standout asset, up 12.9% YTD despite recent pullbacks. Meanwhile, Circle Internet (CRCL), issuer of the USDC stablecoin, has soared since its June IPO. Shares have nearly sextupled from their $31 debut to $196.90, pushing its valuation past $44 billion.
Federico Brokate of 21Shares sees Solana as the next major breakout in crypto, citing its scalability and low fees. 21Shares has launched over 40 crypto ETPs in Europe and plans U.S. expansion.
Markets now price 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 October 29 meeting. Still, the Fed remains cautious.
“Stronger-than-expected job growth and steady unemployment highlight labor market strength,” said Lindsay Rosner of Goldman Sachs. “This supports the Fed’s patient stance.”
With AI-driven investment, solid job data, and somewhat more stable geopolitics, the second half of 2025 looks cautiously optimistic—but still volatile.
Final Thoughts: What to Watch in H2 2025
The second half of 2025 appears promising, but not without risks. The bull market is underpinned by strong earnings projections, a stabilizing bond market, and improving trade dynamics. But elevated valuations, geopolitical tensions, and uncertainty around interest rates and tariffs will keep investors on alert.
For investors, the strategy is clear: focus on companies with strong earnings and sales growth—especially in tech and healthcare—and stay flexible in the face of market shifts. The rally may still have legs, but rough patches lie ahead.
Important Information
This material is provided for informational purposes only and does not constitute investment advice or a recommendation to take any particular investment action.
This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
Some portions of this content may have been generated or assisted by artificial intelligence (AI) tools and been reviewed for accuracy and quality by our editorial team.
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