Midyear market and economic outlook: Will investors continue to overlook the risks?

Russell Price, Chief Economist – Ameriprise Financial 

Anthony Saglimbene, Chief Market Strategist - Ameriprise Financial

July 21, 2025

Equity markets proved remarkably resilient in the face of geopolitical shocks and trade tensions in the first half of the year. Ultimately, firm economic results and good corporate profit reports helped stocks recover from a significant tariff-related swoon in April. 

Still, uncertainty lingers in the broader macroeconomic environment. Will investors continue to discount these risks in the second half of 2025 and push stock prices higher? Here’s our midyear market and economic outlook. 

A mixed economic and market picture 

With the second half now underway and equity prices at all-time highs, we believe investors have largely discounted a future with a fairly benign inflation, growth and trade environment. Prices for some imported goods are likely to rise due to tariffs, but we believe worst-case scenarios for tariff-inspired inflation have been avoided. Similarly, economic growth is likely to remain bumpy but positive.    

Still, the path forward remains clouded by unresolved trade issues, the risk of rising inflation pressures and a high degree of uncertainty around overall impacts on the macroeconomic environment. For now, investors appear comfortable reserving judgment on these and other unknowns, waiting to see whether the second half of the year will bring clarity or further complexity. Overall, we believe maintaining a disciplined and well-constructed investment approach that doesn't lean too bullish or too bearish is the appropriate path forward, given elevated stock valuations and pertinent risks. 

The impact of tariffs has been limited thus far, but such influences should become more visible in the second half. The question becomes, are investors too sanguine about potential tariff consequences, leaving stocks susceptible to periods of volatility? 

In our view, major stock averages currently reflect an environment where ongoing trade developments do not materially alter economic stability in the second half or place significant upward pressure on inflation. 

Meanwhile, a modest pace of consumer and corporate spending should also lend support to financial market sentiment.  

Bottom line: The setup for the second half and into next year is starting to look more positive fundamentally, reflecting a still-healthy macroeconomic environment — despite some adverse risks from trade, tariffs and elevated stock valuations. In a nutshell, this is what has helped fuel U.S. major stock averages to new all-time highs. However, a lot of positivity regarding the second half is now discounted into stock prices, in our view. As a result, baseline expectations for how much further equities can stretch higher over the coming months, without more positive movements on the trade front, remain a large unanswered question. 

Dynamics investors should watch 

As we enter the back half of the year, investors will want to stay apprised of the following dynamics as they have the potential to influence stock prices in the near term: 

• AI advancements: Corporate profit results are expected to remain strong, especially in the technology sector. As was the case in the first half, technology and tech-related businesses associated with the artificial intelligence (AI) theme are projected to be large drivers of earnings growth in the third and fourth quarters. In our view, this will be a key ingredient in helping justify elevated stock valuations across the broader S&P 500 Index, and where the near-term buying opportunity in AI-related stocks created in early April has closed significantly.  

• Tariff impacts: In July, investors will start seeing second quarter profit results and indications of business conditions for the second half. In terms of results, tariff impacts on Q2 earnings are likely to be modest, given companies' ability to front-load inventory and navigate supply chains ahead of April's reciprocal tariffs.  

• Concentration of earnings growth: FactSet estimates are calling for Q2 2025 S&P 500 earnings per share (EPS) to grow by roughly +5.0% year-over-year on revenue growth of +4.2%. Under the surface, though, communication services and information technology firms are again expected to do much of the heavy lifting in powering Q2 profits, as five S&P 500 sectors are expected to post year-over-year EPS declines, and three others are expected to post earnings growth below the broader index. 

• Management sales and earnings guidance for 2026: Currently, corporate profits in 2026 are expected to grow by low double digits, according to FactSet. While the risk of a recession this year or next may be low — especially compared to where fears stood in April — profit estimates for 2026 could be adjusted lower as we get closer to year-end, particularly if tariff impacts prove worse than expected.   

Can stocks end the year higher? 

We believe the U.S. stock market now reflects a high degree of optimism about the rest of the year, similar to where stocks entered the year. Nevertheless, if the script goes as planned and economic activity remains firm, corporate profitability remains solid (especially across tech) and the inevitable unexpected developments don't throw the market off track too much, we believe stocks have an opportunity to grind higher through year-end. 

Your financial advisor is here to help you navigate the rest of 2025  

If you have questions about how the most recent market and economic developments may affect your portfolio, reach out to your Ameriprise financial advisor. They’re here to help you make sense of the broader macroeconomic environment and can make personalized recommendations to adjust your portfolio based on your financial goals, risk tolerance and time horizon.