Every January, we commence the new year with a rough sketch of the 12-month horizon, including the market and economic indicators making us feel optimistic, neutral, and cautious. June is an ideal time to update our perspective on this 2025 outlook.
Halfway through the year, here are three current economic and market highlights.
1. Due to interest rate volatility, bonds are carrying more risk than equity market participation.
What to Know: With elevated inflation expectations, heavy Treasury issuance (to fund the government deficit), an increase in the term premium (i.e., the additional compensation investors demand to hold long-term bonds), and softening global demand for Treasuries, volatility within longer-term interest rates is not likely to subside.
As a result, investors participating less in the equity market are likely to generate more volatility in their investment return profile.
How to Respond: Invest wisely, understanding the big picture of bonds versus equities, even when bonds feel safer.
In addition, our Investment Management Team has incorporated risk management techniques within fixed-income portfolios. At a high level, this means they are finding ways to protect fixed-income funds. At ground level, this looks like reducing duration (i.e., favoring shorter bond maturities) and using downside protection structures. This positioning is consistent with the expectations outlined in our 2025 market and economic outlook.
2. Increased geopolitical tensions between Israel and Iran are not a reason to avoid equity market participation.
What to Know: When it comes to the economy and markets, remember: the short term reacts, but the long term realigns.
In other words, when geopolitical tensions take hold, temporary market reactions (i.e., an increase in global energy prices, a flight to perceived safe-haven assets like cash or gold, and more volatility within global equity markets) are normal. Even still, history shows that these events rarely have a long-lasting impact on stock market returns. Instead, over time, the stock market will realign with a more familiar cadence of returns.
How to Respond: In times of uncertainty, we encourage investors to stick to their financial plans and maintain equity market participation. Stay invested and stay connected to your advisors, especially if you have concerns.
Credent’s Investment Team uses a disciplined, non-emotional approach to asset allocation, security selection, and risk management, ensuring client portfolios remain aligned with their long-term goals.
3. Attempting to gauge an economic slowdown as a basis for market timing is likely to be detrimental to an investor’s financial plan. Keep a long-term view.
What to Know: In “Our View of 2025,” we discussed three possible economic scenarios: a soft landing (gradually slowing growth), a hard landing (economic contraction), and a no-landing scenario (continued growth).
The path for 2025 has showcased a gradual slowing of the U.S. economy (a soft landing), partly due to trade policy uncertainties. While doubts around tariffs remain a challenge, investors can take heart knowing many company management teams have navigated and successfully adapted to similar environments. Thus far, earnings have remained resilient in aggregate.
How to Respond: Keep a long-term view and remember that the market and economy have minds of their own, often straying from what the masses expect.
Rather than guessing short-term market movements, we suggest using disciplined portfolio construction and proactive risk management tools to navigate any economic scenario. In the current environment, our Investment Management Team is mitigating risk while positioning portfolios for long-term appreciation.
As we revisit our 2025 economic and market outlook, reassess your standing. If you have questions about your plan or portfolio, reach out to our team using the form below.