2025 Midyear Outlook, From an Institution Lens

Change is inevitable. And while no one expected the speed and veracity of change since January, we live in a dynamic, complex, and connected world — one where change should be expected. Anticipating change is one thing but being able to see the forest for the trees is another, especially in a fluid environment like today’s. That’s why LPL Research created the Midyear Outlook report.

From an economy and labor market that's shifting to what the end of 2025 has in store for stocks and bonds, and how trade policy factors into all of it, the Midyear Outlook is designed to equip financial institutions and their executives with the strategic insights needed to position their clients and organizations for success. Thinking back to where the year started, it’s doubtful anyone would have predicted the turn of events from the past six months, nor the volatility.

Economy: Entering Unchartered Waters?

In the second half of the year, the delayed effects of trade policy will begin to take a more noticeable toll on the economy, resulting in slower growth, weakening labor demand, and a modest uptick in inflation. These emerging challenges will create a more complex landscape for the Federal Reserve, requiring them to navigate carefully as they assess the appropriate course for monetary policy.

With a full plate to balance, the federal funds rate will likely remain higher for longer. Tariff headlines will continue to drive market sentiment, adding complexity to both growth and inflation forecasts.

Businesses and Workers Are Hesitant About Current Labor Market

_{*Source LPL Research Bureau of Labor Statistics 6/9/2025}

Stock Market: Path to Upside Clouded with Uncertainty

If “tariff” isn’t the word of the year for stock investors so far, then perhaps it’s uncertainty. Uncertainty around trade policy dominated the path of the stock market in the first half and will continue to play a large role in the second half. Tariffs influence the key drivers of stock market performance: economic and corporate profit growth, inflation, and interest rates. If stocks are going to continue to move higher through year end, trade policy and corporate earnings will need to cooperate. A silver lining could come from big-tech companies who continue to invest in innovation.

Potential upside catalysts make us comfortable suggesting portfolio risk levels stay near benchmarks. Sources for these potential catalysts include:

• Productivity gains from investment into artificial intelligence
• Lift to corporate earnings via the tax bill
• Pivot toward a more pro-growth-friendly policy as the mid-term elections near

Bottom line, anticipate modest gains for stocks over the next six months with volatility in between. Consider using market pullbacks as tactical opportunities to selectively increase equity exposure.

Bond Market: A Case of Jekyll and Hyde

Treasury yields will face multiple Hyde-like headwinds, including policy uncertainty, growing debt concerns, increased Treasury issuance, waning foreign demand for U.S. Treasuries, and more. Despite obstacles to a sustained rate rally, yields largely depend on growth and inflation expectations. If economic data — especially labor market figures — shows more material weakness, yields should decline and make the case for a dose of Dr. Jekyll. But regardless, volatility in the bond market is expected to persist.

While price appreciation for fixed income is likely to be limited, high-quality bonds remain valuable for portfolio risk mitigation and potential gains given historically attractive yields in portfolios. However, maintaining a neutral duration (e.g., bonds with maturities of up to five years) is advisable as we believe the yield curve should continue to steepen.

Don't Miss the Webinar and Full Report

This is just a snapshot of the market analyses and forecasts from 2025 Midyear Outlook: Pragmatic Optimism, Measured Expectations. Don’t miss the opportunity to hear from the report’s authors in the upcoming webinar — what’s driving their perspectives and related actions for institutions to consider. We’ll send the comprehensive report to you after the webinar so be sure to reserve your spot today.

There’s a lot to take in, but then with over 400 years of combined investment experience, LPL Research has a lot to offer. As one of the largest research teams in the country, it’s all designed to deliver first-rate investment research that helps institutions best meet the needs of their clients and organizations with efficiency and ease.