As we reach the halfway mark of 2025, markets are back at all-time highs, but investor sentiment is anything but euphoric. Under the surface of this strong performance lie global trade tensions, cautious insiders, inflation questions, and a still-unresolved post-pandemic economic reckoning. So where do we really stand, and what should investors expect in the months ahead?

 

International markets have been outperforming their U.S. counterparts this year. European equities are up more than 20% year-to-date, and the global index has risen over 16%, compared to just over 1% for the S&P 500. The strength of foreign markets has drawn renewed attention to international diversification, especially as domestic performance slows.

 

U.S.-China trade negotiations are once again in the spotlight, with a new round of tariffs scheduled to take effect on July 9 unless a last-minute agreement is reached. These looming measures could create turbulence, particularly in sectors like manufacturing and technology that rely heavily on global supply chains. Investors should be prepared for renewed volatility if talks fall apart.

 

At first glance, inflation seems to be settling down. Headline CPI is running at 2.4%, and core inflation is at 2.8% — both still above the Fed’s 2% target, but significantly lower than the 9% peak we saw in 2022. This improvement has fueled hopes that interest rate cuts could be on the horizon.

 

But the bigger story lies beneath the surface. As economist Milton Friedman famously said, “Inflation is always and everywhere a monetary phenomenon.” The key variable isn’t just price increases — it’s the supply of money, or M2.

 

During the COVID era, M2 surged to historic highs, helping fuel inflation. Since then, the money supply has normalized, growing at around 4% annually today. That’s one reason inflation has cooled — not necessarily because of tariffs or supply chain improvements, but because there’s simply less “new” money chasing goods.

 

Investors may feel optimistic about higher interest rates, but when you factor in inflation, the story changes. The real interest rate — the rate you earn after adjusting for inflation — has hovered around 2% over the past two years.

 

So while a CD or short-term bond may appear attractive compared to the last decade, the actual purchasing power of that return is modest. This is one reason the Fed is reluctant to start cutting rates too soon: doing so could reignite inflation before it’s fully extinguished.

 

Despite the cautious macro picture, the stock market has been remarkably resilient:

             •            The Dow is up 3.6% YTD, and 17% from its 2025 low

             •            The S&P 500 has gained 5.5% YTD, and 24.5% from its low

             •            The Nasdaq has surged 33.4% from its low, and is up 5.5% YTD

 

The Nasdaq even led the charge by reaching a new all-time high in the final week of June — a full recovery from its bear market fall, completed in just 11 weeks.

 

But not everyone’s buying into the momentum. Insider sentiment has shifted: According to Vickers Stock Research, corporate insiders were bullish early in the rally, but as stocks pushed higher, that stance has cooled. In recent weeks, insiders have moved from “slightly neutral” to “solidly neutral.”

 

That’s often a signal that further gains may be harder to come by — at least without a compelling catalyst.

 

June’s economic data painted a mostly positive picture. 147,000 new jobs were added, beating expectations. The unemployment rate dipped to 4.1%, and average hourly earnings rose 3.7% year-over-year.

 

However, digging deeper into the numbers reveals a few wrinkles. Much of the job growth came from state and local government hiring and the healthcare sector, while the private sector accounted for only half of June’s total gains.

 

Manufacturing activity also surprised on the upside, rising from 40.3% to 52.1% — a welcome sign of resilience amid trade uncertainty.

 

No sector illustrates the market’s mood swing more than technology. After a brutal first quarter, where the Technology Index dropped 12.65%, the sector staged a remarkable comeback in Q2, posting a 23.71% total return — the best among all sectors.

 

What caused the reversal? In part, it was optimism around semiconductor sales, which jumped 18.1% year-over-year in Q1. Add to that the possibility of rate cuts, easing trade tensions, and ongoing demand for AI and automation, and tech once again became the market’s darling.

 

 

Beyond the economic data, Middle East tensions have escalated, and speculation about a broader conflict — even a “Great War” — has surfaced. Historically, U.S. markets tend to fall at the onset of major global conflicts but rebound quickly. Still, the threat adds another layer of uncertainty as we head deeper into summer.

 

While the rally has been impressive and economic data has been strong, some economists argue that we haven’t fully dealt with the aftershocks of pandemic-era spending. There’s still the possibility of a mild recession ahead, especially if consumers begin to pull back or if global tensions boil over.

 

That said, the stock market is a leading indicator. Its strength suggests that investors, overall, believe growth can continue — even if there are bumps in the road.

 

Yes, inflation is easing — but not gone. Rate cuts may be coming — but not guaranteed. And the market is soaring — but with increasing caution.

 

The road ahead will likely include more volatility, especially with tariffs, Fed decisions, and global politics in play. But as history repeatedly shows, long-term investors who stay committed to their strategies tend to come out ahead.

 

We’re halfway through 2025. There’s plenty of uncertainty left, but also plenty of opportunity.

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