Mid-Year Outlook 2025: Investing After the Storm

Written by Matthew David Palazzolo, CFA and Chris Brigham, CFA

As we close the first half of 2025, you might expect our market outlook to have shifted dramatically given the recent economic and geopolitical upheaval. Yet, surprisingly, our perspective is largely unchanged. With policies on their current path and markets trading at their present levels, our forecast remains fairly steady, despite some adjustments along the way.

We continue to expect a slowdown in the US economy over the course of the year, with risks slightly elevated compared to January but sharply reduced from what they were in early to mid-April.

As for the markets, private markets continue to shine, while municipal bonds have emerged as a standout liquid asset class compared to six months ago.

The US Remains the Economic Epicenter

With the past six months having challenged the notion of “American exceptionalism,” US policy has clearly shaken the markets. By extension, US assets have borne the brunt of the impact. Initially, tariffs sent US assets tumbling and rattled global markets. But as the White House largely reversed course, those same assets rebounded, highlighting America’s central role in this year’s financial drama.

For the past several years, the US economy has been the envy of the developed world, coming out of the pandemic stronger and growing much faster than others. Yet it appeared that period of above-trend growth would finally meet supply-side constraints. Steering the economy back to a longer-run equilibrium without triggering a recession would be a major triumph for economic policymakers—a goal that seemed achievable at the start of the year and still does. But since January, the fundamental economic picture has dimmed slightly, mainly due to the uncertainty introduced by ground-shaking government policies.

Uncertainty has defined the year thus far, as highlighted by our Chief Investment Officer, Alex Chaloff, in his Q1 letter. Measures of economic uncertainty—evident in surveys, the press, and corporate earnings calls—have hit historical highs. The concern is that this elevated uncertainty might lead company management teams and/or consumers to settle into a holding pattern, potentially rippling through the economy and sparking a mild recession.

Our Chief Economist noted after Liberation Day that if tariffs and policy-driven uncertainty persisted for months, the odds of a recession (which had been low) could rise to around 50%. But he humorously suggested forgetting this prediction if policies were quickly reversed. That story, in a nutshell, sums up how we—and other market participants—have navigated policy news and the prevailing economic climate this year.

Thankfully for investors, those policies were paused soon after, mitigating much of the potential economic risk. Yet, some lasting damage and persistent uncertainty linger. Tariff policy remains unpredictable, as we’ve already seen in early July.

Looking at the economic picture today, we’re trying to square three key elements: “hard” economic data, “soft” economic data, and management commentary. The “hard” data—actual dollars, jobs, numbers of units sold, etc.—remains quite strong. If you hadn’t seen the news or the stock market’s performance, the macroeconomic data alone would suggest a healthy economy nearing a stable equilibrium...

What else can we expect in the second half of 2025? Click here to read our full outlook.

If you'd prefer to watch our Mid-Year Outlook, click to hear from Alex Chaloff and Maura Pape.