We started 2025 on a high note — though we acknowledged that “no market environment is ever permanent, and that change is always potentially around the corner.” That change arrived, and with it came renewed volatility, driven in part by assumptions that President Trump’s policies would closely mirror those of his prior term.
So far this year, the direction of policy has played a key role in driving the markets. Uncertainty surrounding trade policy was a dominant force in the first half — and it’s likely to continue shaping the landscape in the months ahead.
Volatility: More Messenger Than Menace
The first half of 2025 has brought increased volatility, influenced by trade policy shifts, an evolving Federal Reserve stance, geopolitical uncertainty, and renewed interest in artificial intelligence. While volatility may create both challenges and opportunities, it also highlights the importance of understanding one’s risk tolerance before making changes. Historical episodes such as the 2011 debt ceiling crisis and 2018 trade tensions demonstrate how markets have absorbed shocks and later resumed growth.
Market and Policy Environment
Despite ongoing uncertainties, equity markets have shown resilience, with the S&P 500 rebounding from earlier lows this year. Key drivers include policy shifts, bond market dynamics, and alternative investment strategies.
Looking ahead, the delayed effects of trade policies may result in slower hiring, moderated GDP growth, and a modest inflation increase. These factors present challenges for the Federal Reserve as it balances inflation control with supporting employment. While rate cuts have been hinted at, a cautious approach is expected in the near term.
Fixed Income and Alternatives
Bond yields have remained elevated due to global monetary trends, increased U.S. debt issuance, and persistent inflation in the services sector. High-quality bonds continue to serve as tools for managing risk and generating income, particularly amid recession concerns. Alternative investments, such as equity market-neutral funds and global macro strategies, may provide diversification benefits by mitigating volatility and delivering non-correlated returns.
Navigating the Path Ahead
As we move into the second half of 2025, uncertainty and opportunity will continue to coexist in the markets. Staying informed about evolving policies, economic trends, and market dynamics is essential for making prudent financial decisions. While challenges remain, a thoughtful, balanced approach can help investors navigate volatility and position themselves for the journey ahead.
Explore key insights and timely perspectives in LPL Research’s 2025 Midyear Outlook: Pragmatic Optimism, Measured Expectations report—designed to help you understand what may lie ahead for the economy and markets. Download the Full Report
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All data is provided as of July 8, 2025.
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