LPL Research Presents 2025 Midyear Outlook

We're pleased to offer 2025 Midyear Outlook: Pragmatic Optimism, Measured Expectations, providing a comprehensive recap of the economy and market to date, plus a forecast through year-end.

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Uncertainty, Unpacked

Merriam-Webster defines volatility as "tendency to change quickly and unpredictably" — which is a fitting description of the 2025 environment. The volatility has stemmed from assuming President Trump's second term policies would mirror his first, as well as the subsequent impact of those new policy directions.

As more hard data becomes available, we will all need to carefully evaluate the true economic impact of these policy shifts. Given the array of potential outcomes, investors should prepare for ongoing uncertainty and the market volatility that may accompany it.

"With uncertainty expected to persist, we believe tactical portfolios should seek to carefully balance risk mitigation with proactive positioning for new opportunities."

Marc Zabicki, Chief Investment Officer

LPL Research

Midyear Outlook Highlights

Economy

Commodities

Stocks

Currencies

Bonds

Alternatives

Economy

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, softening labor demand, and a modest uptick in inflation. These emerging challenges will create a more complex landscape for the Federal Reserve, requiring them to maintain a cautious stance on monetary policy and further delay rate cuts. Tariff headlines will continue to drive market sentiment, adding complexity to both growth and inflation forecasts.

Stocks

The stock market’s performance will center around trade negotiations, AI, interest rate volatility, and the tax bill, among other things. Stock valuations reflect a lot of good news amid so much policy uncertainty. Given the limited room for multiple expansion, we expect only modest gains by year-end. Episodic periods of volatility are likely amid a challenging macro environment, but market pullbacks should be viewed as opportunities to selectively increase equity exposure. LPL Research’s year-end 2025 fair value target range on the S&P 500 is 6,000 to 6,100.

Bonds

Treasury yields face multiple headwinds, including policy uncertainty, fiscal concerns, de-dollarization, and rest-of-the-world yield trends. 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 come under pressure, but volatility in the bond market is expected to persist. High-quality bonds remain valuable for portfolio risk mitigation and potential gains in times of broader uncertainty and economic stress.

Alternative Investments

As economic and policy uncertainty is expected to persist, we continue to stress the importance of diversification and the integration of stability-enhancing strategies in portfolios. Our preferred approaches include equity market-neutral, nimble discretionary global macro, and a range of managed futures strategies. Additionally, select niche strategies — such as volatility arbitrage and cross-asset focused tail risk — can also offer value. In private markets, infrastructure, secondary private equity market investments, and private credit remain top choices, though with tempered total return expectations in the current environment.

Commodities

Longer-term growth drivers for the broader commodities complex remain intact. However, how trade policy and geopolitics unfold in the second half will ultimately dictate the global growth outlook and how commodity markets perform. China’s economic recovery remains a wild card, and until a trade deal is inked, the probabilities for a broader commodities rebound remain subdued. Gold remains a bright spot, with an array of catalysts supporting the rally, leaving us positive on the precious metals group.

Currencies

Significant fiscal support has revitalized growth prospects abroad while U.S. trade policy remains fragile. The administration’s goal of reducing the U.S. trade deficit could have a meaningful impact on global trade and ultimately reduce demand for the dollar. Threats to U.S. leadership in technological innovation have further weighed on the American exceptionalism narrative. Sanctions on foreign assets after Russia’s invasion of Ukraine have also underpinned a shift away from dollar reserves among global central banks. Collectively, these factors have reduced the dollar’s valuation, but its status as the world’s reserve currency will remain unrivaled.

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Disclosure

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

All index data from FactSet.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This research material has been prepared by LPL Financial LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

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