Market outlook for the second half of 2025

US equity markets target fresh record highs by year-end

The S&P 500 is projected to reach fresh record highs before year-end, a target that seemed ambitious just months ago but now appears increasingly achievable. This bullish outlook is underpinned by a resurgence in technology earnings that's catching even seasoned analysts off guard. The momentum reflects not just corporate resilience, but a fundamental shift back towards growth over value.

This isn't just optimism – it's based on hard data showing technology companies are delivering earnings beats that exceed even the most bullish forecasts. Artificial intelligence (AI) revenue streams are finally translating into bottom-line results, creating a virtuous cycle of reinvestment and innovation.

The path to new records represents more than just another milestone – it signals a complete vindication of those who never abandoned their faith in American innovation. Healthcare companies are also showing strong fundamentals, but they're playing second fiddle to the tech revival that's driving this market higher.

Sceptics will point to valuation concerns, but momentum rarely stops at arbitrary levels. The combination of earnings momentum and technical breakouts suggests fresh record highs are not just possible, but probable before year-end.

​Tech dominance returns as rotation trade unravels

​The much-anticipated rotation away from mega-cap technology stocks has proven to be a false dawn, with investors now scrambling back into the sector as earnings demonstrate why these companies command premium valuations. The brief flirtation with financials and industrials is rapidly unwinding as it becomes clear that technology remains the only game in town for serious growth.

​This reversal has caught many investors wrong-footed, particularly those who bought into the rotation narrative at precisely the wrong moment. The fundamentals never supported a sustained move away from companies that continue to demonstrate pricing power and margin expansion in an uncertain economic environment.

​Mid-sized firms that briefly enjoyed their moment in the sun are now being abandoned as capital flows back to quality. The market is rewarding companies with genuine competitive moats rather than hoping that cyclical recovery will lift all boats.

​This presents a stark lesson for traders: fighting the secular trend rarely pays off.

​Dollar weakness creates perfect setup for major bounce

​The US dollar's 10% decline year-to-date has created one of the most compelling contrarian opportunities in currency markets, with positioning data revealing extreme underweight exposure that typically precedes sharp reversals. This weakness has been overdone, and the fundamentals are already shifting in favour of a significant dollar rally.

​European strength has been built on shaky foundations, with the region's economic data showing increasing signs of weakness that markets have chosen to ignore. The euro's rally to multi-year highs looks increasingly vulnerable as reality begins to bite and investors realise they've been backing the wrong horse.

​Investors who rushed into European assets are now facing an uncomfortable reckoning as US economic resilience becomes impossible to ignore. The rebalancing back to US markets from Europe is already beginning, driven by superior earnings growth and technological innovation that Europe simply cannot match.

​Commodities surge amid geopolitical tensions

​Central banks continue accumulating gold reserves, providing fundamental support for the precious metal. Geopolitical tensions are driving safe-haven demand, with expectations of further price increases if conflicts escalate.

​Oil trading presents both opportunities and risks as Brent crude oil has surged nearly 13% in recent weeks. The Iran-Israel conflict has created supply concerns, with projections placing prices beyond $100 per barrel if tensions escalate further.

​Potential disruptions in the Strait of Hormuz represent a significant risk factor for global oil supplies. JPMorgan estimates a 21% probability of such disruptions, which would have far-reaching implications for energy markets and global economic growth.

​Bond markets face persistent headwinds

​The 10-year US Treasury yield is expected to remain above 4.25% due to persistent inflation concerns and federal deficit issues. This elevated yield environment makes bonds less attractive relative to equities, particularly growth stocks that can benefit from technological advancement.

​Investment strategies are shifting away from traditional bond allocations towards equities. The current economic environment favours companies with pricing power and growth potential over fixed-income instruments that struggle with inflation erosion.

​Persistent inflation remains the key challenge for bond markets. Central banks' efforts to combat rising prices have kept interest rates elevated, creating headwinds for bond performance and making alternative investments more appealing.

​The bond market's traditional role as a portfolio diversifier is being questioned in the current environment. Investors are increasingly looking to other asset classes for stability and returns, fundamentally altering traditional portfolio construction approaches.

​US reasserts dominance as tariff fears fade

​The great rotation away from US assets is already reversing as tariff shock fears prove to be overblown, creating a powerful tailwind for American markets that will force investors to abandon their diversification strategies. Growth is accelerating again in the US economy, leaving other regions struggling to keep pace with American dynamism and innovation.

​The Federal Reserve (Fed) now has the perfect opportunity to cut rates as inflation pressures ease, providing additional fuel for the rally that's already underway. This policy shift will create a goldilocks scenario of lower rates supporting valuations while growth remains robust enough to drive earnings higher.

​Investors who fled to international markets seeking safety will find themselves caught off-guard by the speed of this reversal. The US economy's ability to adapt and overcome challenges continues to surprise those who bet against American exceptionalism, and this cycle will be no different.

​The combination of easing tariff concerns, accelerating growth, and Fed cuts creates a perfect storm for US asset outperformance. Those who positioned defensively in international markets will be forced to chase performance as the US gap widens once again.