Hello, Tigers,
Many institutions on Wall Street have raised their expected target price for $S&P 500(.SPX)$ in 2025.
@Invesight_Capital a new high-quality creator, which is an Austrailia fund company had recently shared their outlook for the US stock market in the second half of 2025 saying that “ we maintain a ‘cautious optimism’ judgment on the overall US stock market.“
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Market Outlook for H2 2025: Cautious Optimism Amid Uncertainty
H1 2025 Markets Review: The Truth and Risks Behind the “V-Shaped Rebound”
Below are some highlights from their two reports:
The first half of 2025 has come to an end. Looking back on the past 6 months, the global economic landscape has undergone profound changes, and the capital market has shown violent fluctuations under the impact of multiple variables. From the rekindled trade war caused by the US tariff policy, to the divergence of monetary policies of major central banks, to the escalation of geopolitical crises in the Middle East, a series of major events have not only profoundly affected the trend of asset prices, but also laid a key foreshadowing for the market trend in the second half of the year with many important events pending.
Faced with the challenges of the global economy in the second half of the year, investors are also re-examining the balance between risk and return. This article will take the US stock market as an example to systematically review the performance of the capital market and macroeconomic trends in the first half of 2025, and look forward to how investors should make reasonable judgments under the influence of multiple factors in the second half of the year.
1. The "V-shaped" trend of the US stock market in H1 2025
Despite the complex global situation, the three major US stock indexes still recorded an increase in the first half of the year. The $S&P 500(.SPX)$ and $NASDAQ(.IXIC)$ both rose by about 5.7%, and the $Dow Jones(.DJI)$ rose by 4%. Overall, they have experienced a round of "V"-shaped reversal and are currently hovering near historical highs.
Behind this round of reversal is the resonance of multiple macro factors and structural driving forces. Since February, the Trump administration has successively introduced a number of tariff policies. In early April, it issued the "Liberation Day" policy, which triggered mutual tariffs between China and the United States, causing the market's risk aversion to rise rapidly. The S&P 500 retreated nearly 20% from its high point this year. However, the United States subsequently extended some tariffs for 90 days and started negotiations with China. In addition, economic data was stable and U.S. corporate profits were still resilient. Investor confidence was quickly restored, pushing the stock index back to near its high point this year.
In this context, the market's understanding of "uncertainty" is divided, and the flow of funds also shows a certain "polarization":
The AI sector regains its popularity: At the beginning of the year, the AI concept was once questioned about the oversupply of data centers and excessive corporate capital expenditures and pulled back, but with strong demand and continued "endorsement" by technology giants, the AI sector quickly recovered and became the key driving force supporting the rebound of US stocks. Among the "Seven Sisters", Nvidia rose 14%, Microsoft rose 18.8%, and Meta rose 23%.
The safe-haven sector is favored: While popular concepts are rising, more rational investors also flow part of their funds to the safe-haven sector, and $Gold - main 2508(GCmain)$ , $Bitcoin(BTC.USD.CC)$ concept stocks, and essential consumer goods have also recorded positive returns.
Consumption and medical care are under pressure: On the other hand, the non-essential consumer sector has become the hardest hit by policy shocks. Among the "Seven Sisters", Apple is the most affected by this factor, falling 16% this year. In addition, affected by the Trump administration's plan to cut the health insurance budget, pharmaceutical stocks are generally under pressure.
Macroeconomic event review: policy changes dominate the market
Trump's tariff policy reignites the global trade war:
After Trump returned to power, he became the manipulator of the "chaotic" situation in the global capital market in the first half of the year, especially his tariff policy. Under the slogan of "promoting the return of American manufacturing", a 25% tariff was imposed on Canadian and Mexican steel from February, and then it was out of control. The "Liberation Day" tariff plan was officially launched in early April - a 10% basic tariff was imposed on all countries, and additional tariffs were imposed based on trade deficits, pushing the trade war to its peak. The increase in tariffs on China and Southeast Asia reached more than 30%, and the EU and Japan and South Korea also exceeded 20%. China once encountered a "retaliatory tariff" of up to 145%.
The situation eased slightly until Trump announced that some tariffs other than the basic tariffs would be postponed for 90 days, and all countries were brought to the negotiating table and negotiated with China. However, this policy "farce" still lays a lot of hidden dangers for the market evolution after the negotiation window in the second half of the year.
Controversy caused by the "big and beautiful" fiscal budget
At the same time, Trump also proposed a fiscal budget bill called "One Big Beautiful Bill Act". Its core is to continue the tax reduction policy, raise the threshold of social welfare, cut medical insurance expenditures, increase defense investment, establish a "MAGA family savings account", and conduct federal unified planning for AI supervision. The bill has been passed by the House of Representatives with a one-vote advantage. However, the policy has caused great controversy. The CBO (Congressional Budget Office) expects that this bill will increase the fiscal deficit by 2.4 trillion US dollars in the coming years. Musk also publicly "broke up" with Trump because of this bill, causing considerable market turmoil.
Change in the Fed's attitude towards interest rate cuts
Since the end of last year, the Fed's attitude towards interest rate cuts has changed somewhat "dovish", and it cut interest rates twice in November and December last year. Although the official caliber still maintains a cautious "continue to wait and see" view, the dot plot expectations show a positive attitude towards 2-3 interest rate cuts this year, and the market generally expects the Fed to cut interest rates at least once in the first half of the year.
But after Trump's tariff policy, the Fed's position has clearly turned "hawkish". Even if inflation data continues to ease in the next few months, a large number of US Treasury bonds may be issued at a higher cost this year. The market generally expects the Fed to ease concerns about economic recession by cutting interest rates. Trump repeatedly pressured Powell to cut interest rates (even threatening to replace Powell at one point), but the Fed still insisted that it was "not in a hurry to cut interest rates". Obviously, it did not want to "take the blame" for the recovery of inflation. The latest dot plot in June showed a sharp increase in differentiation. Although the median still expected two interest rate cuts this year, more officials expected no interest rate cuts this year. At present, the market generally bets that the Fed's first interest rate cut this year will be postponed to September.
Geopolitical tensions in the Middle East
Recently, Israel and Iran broke out in a 12-day military conflict. Although the missile strikes escalated tensions, Iran showed restraint and adopted a strategy of fighting and talking. The US also played a mediating role. Finally, under the mediation of the United States, Trump announced that the two sides reached a ceasefire agreement. The impact of this incident on asset prices was also short-lived, pushing up $WTI Crude Oil - main 2508(CLmain)$ and gold prices for a time, and U.S. stocks also experienced some declines, but then quickly stabilized and returned. The market basically maintained an attitude that the incident would not escalate, but such a hasty ending also laid hidden dangers for the follow-up.
2. Market outlook for the H2 2025: cautious optimism through uncertainty
With the arrival of the second half of the year, the market is gradually finding its way back from the policy chaos and geopolitical anxiety in the first quarter. Although some risk events have eased marginally, uncertainty remains the core keyword that dominates the rhythm. We will make a systematic outlook on the market in the next six months from four dimensions: tariff policy, currency path, U.S. stock valuation and U.S. dollar credit.
Trump's tariff strategy shifts, market risks are repriced
Looking back at the first half of the year, Trump resumed the "reciprocal tariff" policy, which once again ignited concerns about global trade frictions. Although his usual "high-pressure negotiation" strategy was powerful, he eventually gave in again in the face of tough countermeasures from major economies such as China, Europe and Japan, and the market summarized it as "TACO" (Trump Always Chickens Out).
Currently, the 90-day buffer period is about to end on July 9, and the market is closely watching whether it will be extended or substantially implemented. Once the relevant tariffs are significantly weakened or postponed, it will release a relatively clear positive signal and drive the recovery of risk asset sentiment.
From the industry level, the apparel retail industry (such as $Nike(NKE)$ and $Skechers USA(SKX)$ ) is the first to bear the brunt, because its supply chain is highly dependent on Asian countries such as Vietnam; electronic consumer products (such as $Apple(AAPL)$ ) are highly sensitive to the confrontation between China and the United States, and the volatility is significant; relatively speaking, software and subscription companies are less affected and perform more steadily.
Whether the tariffs are "implemented" or not will directly affect the valuation anchor of risk assets in the second half of the year and become one of the key variables.
The Fed walks on a tightrope, and Fed Put is "used cautiously but not absent"
Powell's attitude on monetary policy is still based on "taking one step at a time", and the logic behind it is: the economy is still resilient and there is still room for policy. But although inflation has fallen, its core part is still stubborn, and the weak job market has significantly increased the proportion of unemployment in the Fed's policy framework.
The market generally expects the Fed to cut interest rates twice before the end of the year, lowering the interest rate range from the current 4.25%-4.5% to 3.75%. However, after experiencing the cost of "unlimited easing" in 2020, the Fed is obviously more cautious in using "Fed Put". Even in the face of a liquidity crisis, the possible support measures will be more targeted, such as repurchase operations, short-term loan tools (CPFF, PDCF), etc., rather than flooding.
In summary: Fed Put is still there, but "it will not be easily drawn."
U.S. stock valuations are not cheap, and cautious optimism is looking for cost-effectiveness
The current U.S. stock market continues to hit new highs, behind which is the market's expected game between a soft landing and liquidity easing. However, from a valuation perspective, the overall valuation of the $S&P 500(.SPX)$ is already in a historically high range, and earnings growth expectations need to be further realized to provide support for valuation.
If the good news is implemented in the second half of the year, such as easing of trade frictions, the Fed turning dovish, and U.S. bond interest rates stabilizing, the market still has room for upward movement. But this does not mean that we can be blindly optimistic. We believe that "cost-effectiveness" rather than "growth stories" will dominate structural opportunities.
For example, software companies such as Adobe, with the stability of the subscription model and cash flow advantages, have strong risk resistance in a complex environment, and their valuations have not significantly bubbled, which is a configuration direction worthy of focus.
The long-term concerns about the credit of the US dollar do not change the core appeal of US stocks
Since the outbreak of the epidemic in 2020, the total size of US national debt has surged from US$23 trillion to the current US$34.5 trillion, an increase of nearly 50%, and the annual interest expenditure in 2024 has exceeded US$1 trillion. While this fiscal expansion has supported the economy in the short term, it has also greatly overdrawn the credit of the US dollar. The depreciation of the US dollar and the weakening of its credit have shown a structural trend. Although the United States has attempted to build a new US dollar circulation system through a "stablecoin" mechanism anchored by national debt, the current total market value of stablecoins is only about US$220 billion, which is far from enough to hedge the huge debt pressure.
At the same time, Trump's "Big and Beautiful Act" (OBBBA), as his key campaign promise, aims to achieve tax cuts and strong governance through a package of legislation. The bill covers corporate and individual tax cuts, MAGA children's savings accounts, social welfare cuts, centralized AI regulatory power, and the introduction of "Section 899" to impose "retaliatory" taxes on foreign capital. The outside world generally worries that it will further push up the fiscal deficit and intensify geopolitical financial frictions.
However, from the perspective of global asset allocation, the United States still has the most high-quality listed companies and is the core allocation place for global capital. As long as the US dollar remains the global reserve currency and the United States remains the center of science and technology and innovation, the long-term attractiveness of US stocks remains solid.
3. Summary: Volatility is still there, and those with clear logic will get the first opportunity
In the second half of 2025, although the market is no longer chaotic, it is still in a sensitive repricing window. We maintain a "cautious optimism" judgment on the overall US stock market, and the strategic recommendations are:
• Avoid varieties with overvalued bubbles
• Prefer high-quality stocks with risk resistance and stable cash flow
• Closely follow tariff policies, the pace of the Federal Reserve and the dynamics of the US dollar
The only way to cross volatility is to return to fundamental logic and be friends with time.
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