CIO Mike Sluder recaps the first half of the year and provides an outlook for the remainder of 2025 with a focus on inflation, deficits and the One Big Beautiful Bill. 

Download the 2025 Mid-year Economic and Market Commentary.

2025 Second Quarter Recap

In the second quarter, we saw tremendous volatility in global equity markets, with the S&P 500 declining 19% from its peak (February 19th) in early April and recovering the full drawdown by quarter-end. In fact, the S&P 500 rallied 23.9% in 55 trading days, marking the fastest recovery from a 15%+ decline in over 70 years.

The lead-up to the “Liberation Day” trade announcement on April 2 started the decline, which then picked up after the announcement. On April 9, following a 12% decline in the S&P 500, the administration announced a pause, which initiated a strong rally.

While bond and equity markets stabilized, the U.S. dollar continued to weaken as the Trump administration’s policy aimed to make U.S. manufacturing more competitive with China and Europe.

In May, we saw a return of the AI tech rally and strong returns overall in global equity markets. The anticipated higher prices from tariffs did not materialize, supporting equity and bond prices. In late June, what seemed like a major global event (U.S. intervention in Iran nuclear facilities) ended up being a minor blip as equities rallied and interest rates remained range-bound.

All in all, markets have persisted despite a series of what would normally be headwinds.

• Inflation
• Deficits
• One Big Beautiful Bill
• Credit
• Student Loans
• Alternatives
• Portfolio Market Positioning

2025 Second Half Outlook

With the One Big Beautiful Bill Act being passed by Congress and signed by the President, we have one less major policy decision outstanding to drive uncertainty. We are likely to see some stimulus in the short term before deficits start to overwhelm growth.

On the Tariff front, we continue to see deals being played out in real time, and it looks like the effective tariff rate will land around 15%-17%. While this is the highest rate since the 1930’s, it is well below the 27% rate estimated after “Liberation Day.” This will lead to higher inflation in the short term (second half 2025 to early 2026) and a return to 2%-2.5% inflation thereafter. While not ideal, businesses will be able to have a more certain policy to make decisions around.

We are likely to see one to two cuts in rates by the Fed before year-end, but it will be much harder to get longer-term rates down. Increasing deficits and higher inflation will keep longer-term rates elevated. What is likely to keep longer-term rates from moving too high is the Treasury issuing more short-term debt and keeping the supply of longer maturities constant.

U.S. equity markets continue to move higher, led again by the large technology names. While the concentration of exposure in the S&P 500 remains a concern, it is remarkable how much cashflow they are able to generate. Outside of technology, we will look to see how tariffs affect margins and which companies can pass through higher prices without taking a hit from demand.

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