To The Moon

As the first half of 2025 draws to a close, the global economic landscape has undergone profound changes, and capital markets have experienced intense turbulence under the impact of multiple variables. From the rekindling of trade wars triggered by U.S. tariff policies, to the growing divergence in central bank monetary policies, and the escalation of geopolitical tensions in the Middle East, a series of major events have not only deeply influenced asset prices but also left several unresolved issues that will shape the trajectory of the market in the second half of the year.

Faced with growing economic challenges ahead, investors are reassessing the balance between risk and reward. This article takes the U.S. stock market as an example to review the performance of capital markets and macroeconomic trends in the first half of 2025 and provides an outlook on the key factors and potential risks that may shape market direction in the second half.

U.S. Equity Market: A “V-Shaped” Rebound

Despite the global uncertainties, all three major U.S. indices posted gains in the first half of 2025. As of this Wednesday’s close, the S&P 500 and Nasdaq have risen 4.6%, while the Dow Jones has gained 2.4%, marking a pronounced “V-shaped” rebound and hovering near record highs.

Source: TradingView

This recovery was driven by a confluence of macro and structural factors. Starting in February, the Trump administration rolled out a series of tariffs, culminating in April’s “Liberation Day” policy, which sparked retaliatory actions from China and caused risk aversion to spike. The S&P 500 fell nearly 20% from its YTD high. However, after a 90-day postponement on most tariffs and the initiation of trade talks with China, combined with stable economic data and resilient corporate earnings, investor sentiment recovered swiftly, pushing indexes back to their highs.

Investor perception of “uncertainty” became more polarized, with capital flows displaying a clear bifurcation:

• AI Stocks Regained Momentum: After early-year concerns about data center overcapacity and excessive capital expenditure, the AI theme rebounded strongly thanks to solid demand and renewed endorsement by tech giants. Among the “Magnificent Seven,” Nvidia $NVIDIA(NVDA)$ rose 12%, Microsoft $Microsoft(MSFT)$ gained 18.8%, and Meta $Meta Platforms, Inc.(META)$ jumped 21%.

• Safe-Haven Plays in Favor: While momentum stocks surged, more risk-averse investors also allocated funds to defensive sectors such as gold, Bitcoin-related stocks, and consumer staples, all of which posted positive returns.

• Consumption and Healthcare Lagged: Non-essential consumer stocks were hit hardest by policy concerns. Apple $Apple(AAPL)$ , the most impacted among the “Seven,” declined 17.6% YTD. Meanwhile, healthcare stocks came under pressure due to Trump’s proposal to cut Medicare funding.

Macro Review: Policy Shifts Dominated Markets

Trump’s Tariff Escalation Rekindled Global Trade Wars

Upon returning to office, Trump became the main driver of H1 market volatility, particularly through his aggressive tariff agenda. Under the banner of “bringing manufacturing back to America,” he started by slapping 25% tariffs on steel imports from Canada and Mexico in February. In April, the administration unveiled the “Liberation Day” policy — a 10% universal base tariff with additional rates based on trade deficits. Tariffs on China and Southeast Asia exceeded 30%, while those on the EU and Japan surpassed 20%. At its peak, China faced punitive tariffs as high as 145%.

Only after Trump agreed to delay the extra tariffs by 90 days and invited global partners to negotiate — including resumed talks with China — did tensions slightly ease. However, this chaotic policy cycle remains a looming risk heading into H2.

The Controversial “One Big Beautiful Bill Act” Fiscal Plan

Trump also proposed a sweeping fiscal plan dubbed the “One Big Beautiful Bill Act.” Its core features include extending tax cuts, tightening social welfare eligibility, slashing healthcare subsidies, boosting defense spending, establishing “MAGA family savings accounts,” and implementing federal AI regulation. The bill narrowly passed the House by a single vote.

The plan sparked major controversy. The Congressional Budget Office (CBO) estimates it will add $2.4 trillion to the national deficit over the coming years. Elon Musk publicly clashed with Trump over the proposal, triggering additional market volatility.

Fed Policy: From Dovish to Divided

Late last year, the Fed had already shown a dovish tilt, cutting rates twice in November and December. The dot plot suggested a likelihood of 2–3 cuts in 2025, and markets widely expected at least one rate cut in H1.

However, after Trump’s tariffs stoked inflation concerns, the Fed turned more hawkish. Despite several months of easing inflation and the looming need to refinance large volumes of government debt at higher costs, the Fed maintained its cautious tone. Even with Trump repeatedly pressuring Powell (at one point even threatening to replace him), the Fed held firm. In June, the dot plot showed deep divisions — while the median still called for two cuts, more officials now forecast no cuts in 2025. Markets now expect the first cut around September.

Source: Projections Materials, Fed

Middle East Geopolitics: Temporary Volatility

A 12-day conflict erupted between Israel and Iran, involving multiple missile exchanges. However, Iran responded with restraint, opting for a “fight and talk” approach. The U.S. played a mediating role, and Trump eventually announced a ceasefire. The conflict had a short-lived impact on markets, briefly pushing oil and gold higher and U.S. stocks lower, but sentiment quickly normalized. While tensions have cooled, the rapid de-escalation leaves risks lingering under the surface.

H2 Outlook: Risks Loom Large

Many of the key issues in H1 remain unresolved, setting the stage for heightened uncertainty in H2:

Tariff Negotiations: Outcome Unclear

In early July, the 90-day tariff postponement expires. With most trade deals still incomplete — particularly with the EU and Japan (which could affect Japan’s monetary policy and the yen’s status) — the market may face renewed turmoil. Trade talks with manufacturing hubs like Vietnam are also under the spotlight.

Fiscal Budget Vote: Market-Sensitive

The budget bill will face a Senate vote in early July. If passed, it could offer short-term stimulus (e.g., via tax cuts) but pressure healthcare stocks. If rejected, it could disappoint markets and heighten political friction.

Economic Data May Hit a Turning Point

While H1 data remained stable, many believe it hasn’t yet reflected the full impact of tariff disruptions. H2 GDP and inflation prints will be crucial. The risk of a “stagflation” scenario — high inflation and economic slowdown — has not been ruled out.

Fed Policy to Clarify

Several Fed officials have begun voicing support for a rate cut as early as July. Powell remains cautious, but has not ruled out earlier action. A clearer rate path could emerge in Q3.

Valuation Bubble Risk

U.S. equities are currently trading at valuations 20–30% higher than global peers, driven largely by expensive tech stocks. If sentiment turns negative, or if themes like AI and autonomous driving lose favor, U.S. markets could face significant de-rating or even a bubble burst.

Source: ChatGPT

Invesight Viewpoint

The first half of 2025 was marked by volatile shifts in economic policy and geopolitical tension. While U.S. equities staged a strong rebound, the second half will be shaped by the resolution of key policy issues, Fed decisions, and the sustainability of elevated valuations.

For investors, the central question becomes: how to remain agile amid volatility and uncover structural opportunities amid uncertainty. That will define successful positioning in the months ahead.