Mid-Year Market Pulse: What to Watch in the Second Half of 2025
As we move into the second half of 2025, it’s a prime opportunity for investors to pause, reflect, and recalibrate. The first half of the year has been shaped by continued economic resilience, evolving Federal Reserve policy, and the initial impacts of post-election legislation. Staying proactive in this environment requires keeping a close eye on key trends that could shape the markets in the months ahead.
Federal Reserve Policy in Focus
After a cautious approach to monetary policy in early 2025, the Federal Reserve remains a central player in market dynamics. The Fed raised rates once in the first quarter, then paused amid signs of cooling inflation and slower job growth. Still, officials have indicated they are prepared to act again if inflation rebounds or growth accelerates unexpectedly.
According to the June 2025 Federal Open Market Committee (FOMC) minutes, policymakers remain concerned about lingering “sticky” inflation in housing and services sectors, even as overall CPI trends downward [1]. Investors are watching closely for signs of further rate hikes or a pivot to cuts later this year, which will have significant implications for fixed-income portfolios and cash strategies.
If rates remain elevated, short-duration bonds and high-yield savings accounts may continue to provide attractive yields. However, any dovish shift could signal a renewed opportunity in longer-duration fixed income assets. Aligning your fixed-income holdings with interest rate expectations is essential as the Fed recalibrates its next steps.
Election-Year Policy Adjustments
The 2024 U.S. elections have ushered in a new legislative landscape, and investors are beginning to see the effects. The current administration has introduced proposals that could reshape corporate tax policy, clean energy incentives, and antitrust regulations. While much of the proposed legislation remains in flux, certain sectors may face headwinds or tailwinds depending on how these policies evolve.
A higher corporate income tax rate reduces the long-run capital stock and reduces the long-run size of the economy which could stir concern among large-cap equity investors, particularly in capital-intensive sectors like manufacturing and financials [2].
Meanwhile, expanded federal investment in renewable energy and electric vehicle infrastructure is likely to benefit clean energy firms and related technology providers.
Investors should monitor Washington closely and consider how new regulations and tax structures could impact earnings, cash flow, and sector allocation. Your Wedbush financial advisor can help you anticipate potential outcomes and adjust accordingly.
Sector and Global Performance Trends
Technology stocks have continued to drive U.S. market gains in 2025, building on their momentum from the previous year. AI and semiconductor breakthroughs have fueled double-digit growth in several subsectors. However, valuations in these areas are increasingly stretched, prompting some investors to consider trimming exposure or rotating into underperforming sectors.
While some European economic indicators show tentative improvements, export-heavy sectors like manufacturing and consumer electronics continue to face cost pressures from shifting U.S.–EU trade policies. Meanwhile, ever-changing U.S. tariffs have raised volatility in emerging markets, especially in sectors tied to semiconductors and clean energy.
This mid-year point is a smart time to review your asset allocation. Are you overexposed to concentrated areas of growth? Have international or small-cap allocations kept pace with your broader financial goals? A balanced, diversified portfolio remains one of the most effective tools for managing market uncertainty.
Stay Agile with Your Financial Plan
The back half of 2025 will bring a continued mix of opportunity and risk. With Fed policy, legislative change, and sector shifts all in play, staying informed and agile is essential.
Now is a great time to reconnect with your Wedbush Financial Advisor. Together, you can assess your portfolio, identify opportunities, and ensure your financial strategy is aligned with the evolving economic environment. Let’s work together to turn insights into action.
Sources:
[1] Federal Reserve Board. “FOMC Minutes – June 2025.” https://www.federalreserve.gov/monetarypolicy/fomcminutes.htm
[2] Tax Foundation. https://taxfoundation.org
[3] Triodos Investment Management. “Emerging Markets Mid-Year 2025 Investment Outlook.” https://www.triodos-im.com/articles/2025/emerging-markets-mid-year-2025-investment-outlook; Associated Press. “EU, US tariffs drive up prices, slow growth.” https://apnews.com/article/eu-tariffs-united-states-15-prices-growth-31e52a6dda17f3b5d70475e1cd0002ca; abrdn. “Emerging Markets: Risks Remain Amid Trade War De-escalation.” https://www.aberdeeninvestments.com/en-us/institutional/insights-and-research/emerging-markets-risks-remain-amid-trade-war-de-escalation
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