Additional content provided by Dr. Jeffrey Roach, Chief Economist.

 

As we enter the second half of 2025, investors face a complex and evolving landscape shaped by shifting trade policies, inflationary pressures, and geopolitical uncertainty.

 

Economy Showing Some Signs of Strain

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The U.S. economy is showing signs of strain from delayed trade policy impacts, with softening labor demand and a modest reacceleration in inflation. While the Federal Reserve (Fed) remains cautious, the path forward is clouded by policy ambiguity and global economic crosscurrents. Despite these headwinds, LPL Research maintains a cautiously constructive view. In the soon-to-be-released Midyear Outlook 2025, we address the following economic questions:

• Will the economy slow in the second half, why, and by how much?

• What is the likelihood of a recession in the next six months?

• Will the labor market weaken along with the economy in the second half?

• What is the outlook for consumer spending?

 • How will tariffs affect inflation?

 • Will the Federal Reserve respond to these crosscurrents with rate cuts, and if so, how many?

 

Equities Powering Through Uncertainty

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For equities, the outlook is one of tempered optimism with the S&P 500 having just reached a new all-time high and stock valuations elevated. With limited room for multiple expansion and tariffs beginning to bite, volatility may persist. Pullbacks may offer tactical opportunities to increase equity exposure.

 

In Midyear Outlook 2025, LPL Research tackles the following questions about equities:

• How have stocks historically done after recovering from corrections?

• Have stocks already priced in all the potential good news?

• How much drag on earnings will tariffs present?

• What areas of the equity market should investors target as potential buying opportunities?

 

Bottom Line

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The second half of 2025 will call for a steady hand. Investors who stay diversified, patient, and opportunistic will be best positioned to navigate volatility and capture potential upside as policy clarity gradually returns. For much more on how LPL Research is thinking about the second half for the economy and the stock market, check out the LPL Research Midyear Outlook 2025, arriving one week from today on July 8, 2025.

 

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