Pragmatic Optimism...Measured Expectations

Our 2025 Midyear Market Outlook

Friday, July 25, 2025

Volatility, as defined by Merriam-Webster, is “a tendency to change quickly and

unpredictably” — a fitting description of the 2025 environment. The volatility has stemmed from assuming President Trump's second term policies would mirror his first, as well as the subsequent impact of those new policy directions.

As more hard data becomes available, we will all need to carefully evaluate the true economic impact of these policy shifts — plus consider the possibility the administration may pivot towards a more pro-market policy as the 2026 mid-term election nears. Given the array of potential outcomes, investors should prepare for ongoing uncertainty and the market volatility that may accompany it.

With uncertainty expected to persist, our STAAC (Strategic & Tactical Asset Allocation Committee) believes tactical portfolios should seek to carefully balance risk mitigation with proactive positioning for new opportunities. We continue to emphasize the importance of diversification across asset classes and geographic regions — plus favor integrating stability enhancing holdings that do not move in lockstep with traditional assets (e.g., alternative investments). We also advocate staying attentive to periods of volatility to take advantage of attractive levels in equities.

Economy

In the second half of the year, the delayed effects of trade policy will begin to take a more noticeable toll on the economy, resulting in slower growth, weakening labor demand, and a modest uptick in inflation. These emerging challenges will create a more complex landscape for the Federal Reserve, requiring them to maintain a cautious stance on monetary policy and further delay rate cuts. Tariff headlines will continue to drive market sentiment, adding complexity to both growth and inflation forecasts.

Episodic periods of volatility are likely amid a challenging macroenvironment, but market pullbacks should be viewed as opportunities to selectively increase equity exposure.

Stocks

The stock market’s performance will center around trade negotiations, AI, interest rate volatility, and the tax bill, among other things. Stock valuations reflect a lot of good news amid so much policy uncertainty. Given the limited room for multiple expansion, we expect only modest gains by year-end. Episodic periods of volatility are likely amid a challenging macroenvironment, but market pullbacks should be viewed as opportunities to selectively increase equity exposure. LPL Research’s year-end 2025 fair value target range on the S&P 500 is 6,000 to 6,100.

Bonds

Treasury yields face multiple headwinds, including policy uncertainty, fiscal concerns, de-dollarization, and rest-of-the-world yield trends. Despite obstacles to a sustained rate rally, yields largely depend on growth and inflation expectations. If economic data — especially labor market figures — shows more material weakness, yields should come under pressure, but volatility in the bond market is expected to persist. High-quality bonds remain valuable for portfolio risk mitigation and potential gains in times of broader uncertainty and economic stress. We believe investors seeking income can find attractive opportunities in bonds with maturities of up to five years.

Alternative Investments

As economic and policy uncertainty is expected to persist, we continue to stress the importance of diversification and the integration of stability enhancing strategies in portfolios. Our preferred approaches include equity market-neutral, nimble discretionary global macro, and a range of managed futures strategies. Additionally, select niche strategies — such as volatility arbitrage and cross-asset focused tail risk — can also offer value. In private markets, infrastructure, secondary private equity market investments, and private credit remain top choices, though with tempered total return expectations in the current environment.

How trade policy unfolds in the second half will ultimately dictate the global growth outlook and how commodity markets perform.

Commodities

Longer-term growth drivers for the broader commodities complex remain intact. However, how trade policy unfolds in the second half will ultimately dictate the global growth outlook and how commodity markets perform. China’s economic recovery remains a wild card, and until a trade deal is inked, the probabilities for a broader commodities rebound remain subdued. Gold remains a bright spot, with an array of catalysts supporting the rally, leaving us positive on the precious metals group.

Currencies

Significant fiscal support has revitalized growth prospects abroad while U.S. trade policy remains fragile. The administration’s goal of reducing the U.S. trade deficit could have a meaningful impact on global trade and ultimately reduce demand for the dollar. Threats to U.S. leadership in technological innovation have further weighed on the American exceptionalism narrative. Sanctions on foreign assets after Russia’s invasion of Ukraine have also underpinned a shift away from dollar reserves among global central banks. Collectively, these factors have reduced the dollar’s valuation, but its status as the world’s reserve currency will remain unrivaled.

In Conclusion

Regardless of what the markets may bring, it is truly a privilege to stand alongside you as a partner, and we sincerely appreciate the confidence you place in us.

Riverfront Capital Strategies Team

(The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.)