The U.S. inventory market accomplished a roller-coaster first half of the yr at record-high ranges, however a bunch of things might knock equities off their perch over the remainder of 2025.
The benchmark S&P 500 is up over 5% on the yr to date, rebounding from an April plunge after an financial scare stemming from President Donald Trump’s “Liberation Day” tariff plan. Listed here are a number of the key questions dealing with U.S. inventory buyers initially of the second half.
WILL TARIFFS BITE, OR JUST BARK?
Whereas worst-case fears about Trump’s tariffs have eased, extra near-term volatility might be in retailer because the U.S. seeks to hammer out commerce agreements within the coming weeks. A July 9 deadline on many tariffs, if it holds, might be an early second-half check for shares.
Even when a number of the harshest levies are rolled again, greater efficient tariffs this yr nonetheless might drive up inflation and lower into firm earnings and shopper spending. The efficient U.S. tariff price based mostly on introduced insurance policies has climbed to 13% from 3% initially of the yr, Goldman Sachs analysts mentioned final week.
After sturdy first-quarter earnings, U.S. company earnings shall be a important gauge to evaluate whether or not Wall Avenue has correctly factored within the fallout from tariffs. Second-quarter stories start later this month, with S&P 500 earnings within the interval anticipated to have elevated 5.9%, in line with LSEG IBES.
WHEN WILL THE FED CUT RATES?
Fed Chair Jerome Powell has pointed to considerations that tariffs will push up inflation as a cause for the central financial institution to carry off on rate of interest cuts. Nonetheless, fed fund futures point out practically three cuts anticipated by the tip of this yr, with the primary doubtless in September, LSEG information confirmed.
The Fed and Powell have endured a barrage of strain from Trump to chop charges and the president has mused about selecting a substitute for Powell quickly, properly forward of the expiration of the chair’s time period in Might 2026. That transfer might improve expectations for extra cuts but in addition carry turbulence to markets involved concerning the Fed remaining unbiased.
A weakening U.S. financial system might additionally immediate the central financial institution to ease charges, and a few indicators of softening within the labor market imply that incoming information poses a check for asset costs. The most recent month-to-month employment report is due on Thursday.
IS BIG TECH BACK IN CHARGE?
After a tough begin to the yr, expertise and progress shares have retaken the reins of the market. Tech was the best-performing S&P 500 sector within the second quarter, whereas the “Magnificent Seven” megacap shares general have surged because the market’s April lows.
The efficiency has revived considerations a couple of comparatively small variety of giant shares propelling the market, together with that the advance might not be as sturdy beneath the floor. Many buyers nonetheless count on extra shares to assist market beneficial properties because the yr goes on.
The equal-weight model of the S&P 500—which higher captures efficiency of the common inventory within the index—is up practically 4% in 2025.
“I’d suspect that if the market goes to proceed pushing greater, you’re going to want to see broadening,” mentioned Brent Schutte, chief funding officer at Northwestern Mutual Wealth Administration.
HOW EXPENSIVE CAN EQUITIES GET?
With the market’s rebound, inventory valuations have additionally ascended. On Friday, when the S&P 500 hit its first report excessive in over 4 months, the index’s ahead price-to-earnings ratio reached 22.2. That was the best stage since February and properly above its long-term common of 15.8.
As buyers search to worth equities, they’re more and more trying to future earnings prospects, together with whether or not 2026 earnings considerably enhance. S&P 500 earnings are anticipated to rise 8.5% this yr and 14% subsequent yr.
One other issue is Treasury yields, which are inclined to strain fairness valuations after they rise. Whereas benchmark yields have subsided since earlier this yr, any spike within the 10-year yield might rattle inventory buyers, similar to if the U.S. fiscal invoice shifting by Congress prompts considerations concerning the widening deficit.
WILL ‘U.S. EXCEPTIONALISM’ DOUBTS DENT EQUITIES?
Questions concerning the attract of U.S. belongings have been a worldwide theme in 2025, triggered by Trump’s beautiful tariffs announcement in April that sparked uncertainty over American coverage. The U.S. greenback lately hit its lowest stage in three years towards a basket of main currencies.
After an extended interval of dominance over different areas, U.S. equities have additionally trailed their worldwide counterparts to date this yr. Non-U.S. equities are nonetheless comparatively low cost on the whole, creating questions on which group will win out over the remainder of 2025.
WILL GEOPOLITICS RE-EMERGE AS A RISK?
Shares pulled again briefly throughout the latest Israel-Iran battle earlier than tensions calmed, however analysts are cautious that resumption of Center East hostilities might trigger contemporary volatility. That may notably be the case if constraints on oil provide led crude costs to soar above $100 a barrel.
Spikes in geopolitical unrest over the previous 30 years have hardly ever been a headwind for U.S. fairness returns, Barclays strategists mentioned in a latest word. However they added that “geopolitical threat flare-ups do encourage bouts of elevated volatility, and threat belongings on the whole could be susceptible ought to the present battle escalate.”
—Lewis Krauskopf, Reuters
