Published July 4, 2025
After a tumultuous but ultimately rewarding first half of 2025, we look ahead to the second half of the year to see what might unfold. The article below provides a summarized outlook from Truist Bank (via Marketwatch).
“If any bull market can handle adversity it’s this one. The S&P 500 SPX closed on Wednesday at a new high having spiked 25% from the April trough.
As Keith Lerner, chief market strategist at Truist, says: “Despite a carousel of concerns — tariffs, geopolitical tensions, policy uncertainty — the market has powered through with a V-shaped recovery, reclaiming all-time highs in one of the fastest rebounds on record.”
And in a new note dated Wednesday, Lerner says he thinks the uptrend will continue, though “the path forward is unlikely to be smooth,,. the bar for positive surprises has risen, and the second half of the year brings its own set of questions.”
There are a number of factors behind Lerner’s cautious optimism — even as he accepts that with regard to macroeconomic issues “crosscurrents abound.”
On a positive note, he reckons the U.S. economy will “muddle through” with growth of around 1.3% this year, and while the labor market is cooling it is not collapsing, he says. Consumer activity is choppy but has held up, he adds.
On the policy front, Lerner thinks the Federal Reserve will cut interest rates two more times this year. Furthermore, the likely passing of the Republican’s tax bill, while not significantly boosting growth on its own, according to Lerner, will provide investors with more clarity.
That’s also what traders would like with regard to trade. “The de-escalation in tariffs has helped ease recession fears, but the lack of long-term clarity remains a risk. Any renewed escalation could quickly shift sentiment,” Lerner warns.
Source: Truist Advisory Services
In terms of market fundamentals an S&P 500 sporting a cycle-high multiple of 22 times forward earnings may means further gains are tougher to come by. However, Lerner observes that the equal-weighted S&P 500 index is valued closer to historical norms and that analysts’ forward earnings estimates have strengthened of late.
Market technicals are mixed. The S&P 500’s recent breakout to fresh highs is positive, but breadth — the proportion of stocks rallying with the market — remains poor. Lerner notes that only four sectors — technology, communication services, industrials and financials — are at all-time highs, while small caps, mid caps and the equal-weighted S&P 500 are still below previous peaks.
The key question for the second half of the year is whether market breadth can improve meaningfully. That may require a pickup in the economy and thus earnings, according to Lerner. “We are open to that possibility, but we’ll wait for confirmation of improved trends before adjusting our stance. In the meantime, we continue to favor large-cap equities with a growth tilt,” he says.
Source: Truist Advisory Services
One area of concern is that investor sentiment has rebounded sharply, Lerner says, and this means there’s a higher bar for upside surprises that could lift stocks.
Still, the market has a particular trend in its favor — the sharpness of the bounce off the April lows. “Historically, when the S&P 500 rallied more than 20% in two months or less — as it just did — it has been higher a year later in all 10 prior instances, with an average gain of 24%,” says Lerner.”
Market Update
A de-escalation in the Israel-Iran situation led to a strong +1% Monday gain for stocks. Tesla’s launch of its long-awaited robotaxi service pushed that stock higher by +8% to further bolster the market. A weak consumer sentiment report pushed interest rates lower Tuesday. Rates fell all this week as investors have come to believe that the Fed will cut interest rates in the coming months, if not as soon as July. Stocks added another +1% Tuesday. Little movement Wednesday though interest rates continued their slide. Stocks resumed their upward climb Thursday with a +0.8% gain. Reports that President Trump might pre-announce his choice for the next Federal Reserve Chairman further pressured interest rates. Trump has made no secret of his desire for the Fed to lower rates. China-U.S. trade relations continued to appear mostly repaired with a strong rally in semiconductor shares providing evidence. Semi bellweather Nvidia vaulted to new highs. Adding to the rally in semis was a powerful earnings report from semiconductor memory maker Micron. Friday found the S&P 500 higher for a fifth straight day to solidify its move to record highs the day before.
Everything came up roses for stocks this week with a sharp downward move in interest rates propelling markets to new heights. The S&P 500 (SPY) popped +3.47% to break out of a three-week consolidation. The Nasdaq 100 (QQQ) notched a +4.15% rally. Small-caps (IWM) remain capped by their 200-day moving average. This week the group’s +3.00% move was halted by this overhead resistance.
Warm wishes and until next week.