As we cross into the second half of 2025, the market has delivered a textbook example of resilience. Despite a flurry of geopolitical headlines and policy unknowns, equities have rebounded sharply and are now trading at all-time highs. Much of the noise in Q2—from tariff surprises to military tensions—created only temporary disruptions. Here’s where things stand and what we expect moving forward.
Inflation, Earnings, and Interest Rates: Stability Beneath the Surface
Inflation is currently at 2.35%, well below the 9.1% peak we saw in 2022. We continue to expect inflation to range between 2.5% and 3% through the end of the year—comfortably in line with the 100-year historical average of 3%. We’re not concerned about current inflation levels, especially considering that the recent tariffs are a one-time bump and not a structural shift.
At the same time, corporate earnings have remained strong, posting 7.75% growth over the trailing twelve months ending Q2 2025. Solid earnings have helped drive equity performance and validate market strength, even in the face of global uncertainty.
Interest rates remain range-bound. The Fed may begin cutting rates before year-end, but the path forward is murky given the unpredictability of trade policy. That said, the bond market has absorbed these uncertainties with relative calm, and yields remain appealing—though we expect fixed income returns to trail equities in 2025.
Geopolitical Volatility and a Sharp Market Recovery
The second quarter was defined by volatility. Tariffs imposed on Liberation Day and the joint U.S.-Israel bombing of Iran initially sparked concern, sending markets lower in the short term. But the market quickly found its footing. Trump’s softening stance on tariffs and the brief nature of the U.S. military response helped settle nerves and turn sentiment.
What followed was a sharp, V-shaped recovery—validating our view from earlier in the year that markets would rebound by mid-summer. Despite headline risk, the fundamental strength of the U.S. economy and corporate sector won out. Equities have now reached new all-time highs, demonstrating the market’s ability to look through temporary shocks.
Outlook: Bullish on Equities, Watching for Trade Clarity
We do not expect the U.S. to enter a recession this year. Consumer spending, corporate earnings, and employment trends remain constructive. As a result, we remain bullish on equities for the remainder of 2025.
Fixed income should perform reasonably well—particularly if the Fed begins cutting rates—but we believe it will underperform equities in the current environment. Volatility may persist as trade negotiations continue, but we expect resolution on several key deals in the second half of the year, which should bring greater clarity to markets.
The Takeaway:
The market has absorbed meaningful shocks this year and come out stronger. Inflation is under control, earnings are solid, and interest rates remain supportive. Our advice remains the same: stay diversified, stay focused on long-term goals, and don’t get caught reacting to short-term headlines. We’re optimistic about what the remainder of 2025 has in store.