Projected Market Scenario in Mid-2025: Consistency, Leadership Transitions, and International Prospects
As the second half of 2025 approaches, global economic growth is expected to ease to 2.6%, influenced by geopolitical tensions and protectionist policies[2]. Despite this, the U.S. economy is forecast to grow just over 2%, with a resilient labor market and manageable inflation[3].
The weakening dollar and improving global demand could see international markets outperform[1]. A retreating dollar is reshaping global capital flows, increasing the appeal of international assets for dollar-based investors, particularly in hedged portfolios[1]. In fact, many global markets are trading at price-to-earnings ratios 6-7 turns below their American counterparts, offering attractive entry points[1].
International equities have been among the stronger performers so far this year, buoyed by European fiscal stimulus and renewed optimism around China's growth prospects[1]. If passed, a sweeping legislative package under discussion in Washington could inject up to $885 billion into the U.S. economy, offering timely support to growth, but potentially adding $3.5 trillion to federal deficits over the next decade[1].
Corporate earnings remain solid, but a slowdown in buybacks has contributed to increased short-term volatility[1]. However, the broader takeaway is that the second half of 2025 presents both complexity and opportunity.
Underlying market dynamics are shifting, with the dominance of mega-cap tech stocks giving way to broader sector participation[1]. Small- and mid-cap equities are beginning to show renewed strength[1].
Active portfolio managers need to focus on managing risks associated with geopolitical tensions and trade policy uncertainties[3]. Emphasis should be placed on sectors with strong fundamentals, such as multifamily and alternative real estate investments[3]. With potential Federal Reserve rate cuts later in the year, managers should consider how these changes might impact bond yields and equity valuations[3].
Geographic diversification can help mitigate risks by spreading investments across different regions and sectors[2]. Invest in countries with strong growth prospects, such as India, which is projected to maintain growth above 6%[2]. Focus on regions with stable economic conditions, such as Malta, which has shown resilience despite global trends[2]. Spread investments across different sectors to mitigate risks associated with specific geographic regions or industries.
The incorporation of artificial intelligence into day-to-day operations could support longer-term productivity gains[1]. Hiring has moderately slowed, and voluntary quits are trending down, suggesting a more settled workforce[1]. Treasury yields are expected to remain below 4.5% in the second half of the year[1].
A recent court ruling has narrowed executive authority to impose certain tariffs, potentially reducing friction in global trade[1]. The global economy is experiencing cooling growth but remains stable with strong fundamentals and easing inflation pressures[1]. Jobless claims have edged higher, but the increase is largely due to seasonal factors, not a deterioration in demand for workers[1].
The U.S. dollar has entered a clear structural downtrend, pressured by growing fiscal and trade deficits, declining global appetite for U.S. assets, and diversification efforts by foreign central banks[1]. Improved buying conditions and stable debt costs are boosting investor confidence, supporting future valuations[1]. Demand is increasing in sectors like senior housing and data centers, driven by demographic shifts[1].
By understanding these economic factors and market trends, investors can tailor their active portfolio management strategies to navigate potential challenges and opportunities in the second half of 2025.
In light of the weakening dollar and improving global demand, international markets could outperform, presenting attractive entry points for dollar-based investors seeking to diversify their portfolios [1]. With a focus on managing risks associated with geopolitical tensions and trade policy uncertainties, active portfolio managers should consider investing in countries with strong growth prospects, such as India, while spreading investments across different sectors and regions to mitigate associated risks [2].
