By Keith Wirtz, Chief Investment Officer, Union Savings Bank
As we reach the halfway point of 2025, I wanted to take a moment to reflect on the economic and market developments that have shaped the year so far—and share my outlook for what lies ahead. It’s been a year full of surprises, policy shifts, and market volatility, but also one that presents real opportunities for investors.
Trade Policy: The Biggest Surprise of the Year
Without question, the most significant—and unexpected—development this year has been the dramatic shift in U.S. trade policy. When the new administration announced a universal 10% tariff on all imports, with some countries facing tariffs as high as 50%, it caught me—and Wall Street—completely off guard.
The April 2 announcement triggered a sharp selloff across equity and credit markets. But just a week later, the administration introduced a 90-day pause on the most aggressive measures, signaling that this was part of a broader negotiation strategy. That gave me more confidence that we weren’t heading toward a worst-case scenario.
Markets React—and Recover
The S&P 500 dropped nearly 19% from its February high to its April low, and the Nasdaq fell even further. But since then, we’ve seen a strong rebound. As of late June, the S&P 500 has climbed more than 22% off its low, and I believe we’ve entered a new bull market.
I’ve kept our year-end target for the S&P 500 at 6,400, which implies a total return of over 10% for the year. It hasn’t been a smooth ride, but I remain optimistic.
Inflation: A Positive Surprise
One of the more encouraging trends this year has been inflation. Retail CPI has held steady at 2.8% for three straight months, and core inflation is even lower. If we exclude shelter costs, inflation might already be below 2%.
This gives the Federal Reserve room to consider rate cuts later this year—something I believe is likely if the next few inflation reports remain benign. A policy rate in the mid-4% range is too restrictive in a sub-3% inflation environment.
Geopolitical Risks and Oil Prices
The recent military actions involving Israel and Iran briefly spiked oil prices, but markets have since calmed. In fact, we’ve seen oil prices, gold, and volatility measures all retreat, suggesting that investors believe the worst may be behind us.
It’s too early to say for sure, but I’ve been asking myself whether we might be witnessing the closing chapter of the long-standing tensions that began in 1979. That would be a profound shift.
Why I’m Bullish on the Back Half of 2025
Looking ahead, I remain bullish on both equities and fixed income. Here’s why:
- Earnings growth for S&P 500 companies is projected at 8.9% this year and 13–14% in 2026.
- Inflation is moderating, and I expect one or two Fed rate cuts before year-end.
- Small-cap stocks are attractively valued and worth a closer look.
- Medium-term bonds offer compelling yield opportunities as the yield curve begins to normalize.
We’re also seeing potential tailwinds from deregulation, tax reform, and more disciplined government spending—all of which support a positive outlook for the U.S. economy and markets.
Final Thoughts
Recession risk remains low, inflation is improving, and corporate earnings are holding up. While the first half of the year brought plenty of surprises, I believe the second half offers real potential for investors.
As always, I encourage you to consult with your financial advisor before making any investment decisions. But from where I sit, the fundamentals are strong—and I’m optimistic about what’s ahead.
Want More Insights?
Keith and our team of financial advisors bring worldly expertise, local knowledge, and service to the table for every discussion. Call us today and set yourself, your business, and your employees up for success in 2025 and beyond – 866.872.1866 or visit The Wealth Group website.
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Opinions and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be appropriate for all investors.
