The first half of 2025 has been anything but quiet.
From tariff changes and trade negotiations to federal budget debates and fluctuating interest rate expectations, headlines have made it challenging for investors to know what’s noise and what really matters.
Markets have reflected that uncertainty. U.S. stocks surged, dipped, then surged again. Bond yields moved in response to inflation and deficit concerns. And questions about the strength of the economy and future earnings remain front and center.
So, where are we now? And what should investors be paying attention to in the second half of the year?
Is the U.S. Economy Still Growing in 2025?
The short answer: yes, but more slowly.
One of the key drivers of economic resilience this year has been the labor market. Job growth has cooled but remains positive. That’s important because when people feel secure in their jobs, they tend to keep spending, and that steady consumer activity helps support the broader economy.
Another factor could be potential fiscal support. While nothing is certain, proposals in Washington include tax relief and spending plans that could give the economy a short-term boost if passed.
But there are headwinds, too. Trade policy remains unsettled. Tariffs have been paused in some areas but remain in place in others. This has led to higher costs on imported goods and some supply chain disruptions, which may take time to show up fully in the data.
Consumer confidence has also dipped. People and businesses alike seem to be holding back on major purchases or long-term commitments. If that cautious mindset sticks around, it could put pressure on growth moving forward.
What’s Driving Market Volatility This Year?
It’s been a rollercoaster few months for markets.
U.S. stocks dropped sharply in the spring but bounced back as investors responded to shifts in trade policy and renewed optimism. International stocks have had a particularly strong year so far, offering some diversification benefits to global investors.
Bond markets have seen dramatic shifts as well. Even with all the movement, the 10-year U.S. Treasury yield remains near where it started the year, around 4.5%. For those who rely on income from their portfolios, today’s interest rate environment offers opportunities we haven’t seen in over a decade.
Broader global dynamics, such as uneven international growth and shifting trade relationships, have also added to market uncertainty, prompting investors to pay closer attention to developments beyond the U.S.
One area drawing more attention is stock valuations. The S&P 500 might look expensive at a glance, but that’s largely due to a handful of high-performing mega-cap companies. The broader market—especially smaller and midsize companies—looks more reasonably priced.
What Do Earnings and Interest Rates Mean for Investors?
Corporate earnings growth expectations have cooled slightly. At the end of 2024, analysts expected earnings to grow about 15% in 2025. That forecast has now dropped to around 9%. Still, given the current backdrop, that’s a relatively healthy outlook.
The Federal Reserve has kept interest rates steady this year, choosing to monitor data rather than make any quick moves. But the bond market hasn’t waited. Yields have fluctuated in response to changing narratives—first fears of a slowdown, then concerns about government spending and inflation.
For retirees and income-focused investors, this environment can offer meaningful opportunities, especially when using a diversified bond strategy that includes a mix of short-term, intermediate-term, and long-term holdings.
How to Adjust Your Investment Strategy for the Second Half of 2025
Here’s the reality: short-term headlines will likely continue to sway markets. But over time, economic fundamentals—not daily news—are what matter most.
Despite a small contraction in the first quarter, the U.S. economy has proven resilient. Unless there’s a major shock, we expect modest growth to continue into year-end. That could support steady earnings and a more stable investment landscape as we move into 2026.
Market volatility isn’t going away. But for long-term investors, it helps to remember:
- Diversification is your best defense.
- Not every headline calls for action.
- Staying focused on your long-term goals is what matters most.
As we move into the second half of the year, it’s a good time to revisit your investment strategy. A mid-year financial checkup can help ensure your portfolio still aligns with your goals and risk tolerance heading into Q3 and Q4
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Tom Hine is a CERTIFIED FINANCIAL PLANNER® professional and owner of Capital Wealth Management. With over 30 years of experience, Tom works with individuals and families on financial planning, retirement strategies, and investment management. He has a particular passion for special needs financial planning, shaped by his personal experience helping raise his sister Amy, who was born with a severe chromosomal condition. Tom understands the emotional and financial challenges that come with caring for a loved one with disabilities and helps clients navigate complex issues like preserving government benefit eligibility, coordinating Special Needs Trusts and ABLE accounts, and long-term care planning. With offices in Glastonbury and Wilton, CT, Tom serves clients across Connecticut and throughout the U.S. Schedule a complimentary introductory meeting with Tom.
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Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. These views are subject to change at any time. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.
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