Mid-Year Market Check-In: Climbing the Wall of Worry

From Ed’s Desk

Confusion continues to reign in 2025.

Terms like Deepseek, Liberation Day, Reciprocal Tariffs, ICE, DOGE, stagflation, recession, and heightened conflict between Iran and Israel have been dominating headlines this year. It’s been a lot to process – and we’re only halfway through.

So with all this uncertainty, how can we still feel optimistic about the second half of the year?

As I write this, both the Nasdaq and S&P 500 are sitting just below their 52-week highs. That momentum has been impressive, even though markets recently pulled back after Israel launched attacks on Iran.

Back in April, things looked much bleaker. Fears around tariffs sent the S&P 500 down as much as 17.8% for the year, and the Nasdaq was down 23.4%. But as of June 17th, the S&P had bounced back into positive territory, up 1.7% for 2025, with the Nasdaq close behind at 1.1%.

You might remember our April and May Mah Mail newsletters, where we talked about how important it is not to miss the “best days” in the market. Well, the 40 days of trading in May and June might go down as some of the best days we’ll see all year. Our Chief Investment Strategist, Brian Belski, remains upbeat – his year-end target for the S&P 500 is 6,700, which is 10.9% higher than where we closed on Friday, June 20^th.

Looking ahead, the second half of 2025 will likely be shaped by expectations for 2026. There’s hope that trade tensions may cool down, which would help improve relations between the U.S. and key partners. In fact, the Atlanta Fed just revised their Q2 GDP forecast, projecting strong growth of nearly 4% - a good sign for corporate earnings and continued stock market strength.

Of course, no bull market comes without worries. And right now, there are plenty of things for investors to be concerned about.

Let’s take a look at some of the major bricks in that “wall of worry” the market always seems to climb:

• Trade policies pushing prices higher. We’re seeing consumer spending slow while household debt increases. Jobless claims have also been rising - fuel for those predicting a potential recession.
• Heavy spending in AI and tech. There’s been massive investment in AI, automation, and other technologies aimed at boosting productivity. But whether that momentum continues through the rest of the year is still unclear.
• Supply constraints on rare earths. The ongoing trade war between the U.S. and China could see Beijing restrict global supply. Right now, China produces 60% of the world’s rare earth materials and processes almost 90%. That’s a potential bottleneck if tensions escalate.
• Escalating global conflicts. The war in Ukraine continues to disrupt energy and agriculture across Europe. More recently, Israel’s bombing of Iran has heightened tensions in the Middle East. As I write this, the US have launched an attack on Iran’s nuclear sites. The escalation of mid-east tensions took a big leap forward.

These are serious risks - and they’re not the only ones. But despite the noise, we believe that any pullback in the market could be a buying opportunity. Markets rarely move in a straight line, and with around $7 trillion in cash still sitting on the sidelines, we expect any dips to be relatively shallow as buyers step in.

At the end of the day, earnings are what drive markets, and we expect corporate earnings to be solid in the back half of 2025.

This is why we always stress the importance of diversification - across sectors, geographies, and asset classes. A well-diversified portfolio doesn’t just help manage risk; it might also help you sleep better at night.

If you’d like to revisit your portfolio or have any questions about your current positioning, we’re here to help.

Wishing you a smooth and sunny start to summer,
Edward