With U.S. tariff impacts becoming more apparent this summer, T. Rowe Price looks to opportunities, risks, and trends in the back half of the year. The firm shared its views on equity and bond investing and how it’s positioning for the second half in the recent 2025 Midyear Market Outlook.
Equity Investing in the Second Half
As global dynamics evolve in the second half, T. Rowe Price anticipates further broadening of the equity market. It’s a trend that began to noticeably take hold in the second quarter, and may become increasingly more dominant in the second half.
“We are returning to an environment in which more sectors and regions can work—one demanding diversification and favoring active management,” explained Josh Nelson, head of global equity, and Scott Berg, portfolio manager, global equity.
Mega-cap tech dominance continues to wane, while AI evolutions such as DeepSeek broaden the opportunity set and reduce AI concentration. Given the inflationary impacts of tariffs and diminishing tech concentrations, value stocks could shine in the second half. In times of inflation, value-oriented sectors such as industrials, energy, and materials historically have offered strong performance.
In addition to broadening sector performance, the authors also anticipate growing opportunities overseas. Argentina and India stand out as two countries of note in the second half, as well as Indonesia and Saudi Arabia.
“Outside of emerging markets, European stocks have outperformed U.S. stocks this year and appear well placed to continue doing so,” the authors noted. However, the unpredictable reality of U.S. tariffs remains a significant wild card and risk in the second half.
A New Global Bond Regime
The global fixed income market is in a state of flux this year, driven by two notable developments. The onset of aggressive U.S. tariffs rocked the world stage and confidence in the U.S. Growing concerns over ballooning U.S. debt and a volatile tariff policy prompted a sell-off in U.S. Treasuries in the second quarter.
“Even if President Trump lowers tariffs from their current levels or abandons them entirely, there will be lingering damage as the uncertainty of the on‑again, off‑again trade levies at varying levels has damaged corporate and consumer confidence,” said Paul Massaro, CFA, head of global high yield and CIO, fixed income, and Ken Orchard, CFA, head of international fixed income. The pair cautioned that even if the U.S. manages to avoid recession, it could be in for a prolonged period of diminished growth and elevated inflation and unemployment.
Meanwhile, Germany reversed course on its “debt brake” with a massive infrastructure fund that could benefit the eurozone in the midterm. It will likely drive growth for the region in the longer term, but for now, anticipate more volatility in the bond space.
2H Bond Investing: New Risks, New Opportunities
In the second half, the environment does not appear promising for developed market sovereign bonds. Narrowing credit spreads to almost historic lows in April also create room for potential widening in the second half.
Despite the challenges, the U.S. credit market enters potential recession and economic slowing from a healthier place than in previous downturns. Corporate bonds are hitting this year’s economic skid with better credit quality than they have historically. Currently, a third of noninvestment-grade bonds in the market are secured (should a default occur, the bondholder receives the collateral).
Additional signs of recession resistance include lower nonenergy cyclical sector allocations and higher credit ratings in the Bloomberg U.S. High Yield 2% Issuer Cap Index than a decade ago. However, investors should beware of high yield issuers from sectors under threat, particularly those reliant on consumer spending.
Diversification remains a foundational strategy to navigate the challenges ahead. “Shorter‑maturity investment‑grade corporate bonds should hold up better than longer‑maturity corporates in an environment of increasing long‑term government yields,” the authors explained.
On the noninvestment grade side, bonds slightly edge out bank loans for favorability. Emerging market bonds may carry less tariff exposure, specifically Eastern Europe and Latin America. These bonds may offer reduced volatility compared to developed market peers from a tariff and global trade perspective.
Diversification & Active Management
“The year 2025 was always going to be one of change, but the speed and extent of developments have taken almost everybody by surprise,” Eric Veiel, head of global investments, CIO of T. Rowe Price, said in the firm’s midyear outlook. “The full impact of trade policy shifts have yet to unfold, but it is clear that the global trading system is being reconfigured before our eyes, with profound implications for financial markets.”
Active management makes sense in the volatile markets of 2025, rife with risk and changing tides. The flexibility that some active strategies may provide can help keep portfolios dynamic. Additionally, carefully curated portfolios constructed using bottom-up research can provide investors with targeted, thoughtful exposure to asset classes. T. Rowe Price offers a range of active ETFs that include the T. Rowe Price International Equity ETF (TOUS ), the T. Rowe Price U.S. Equity Research ETF (TSPA ), and the T. Rowe Price Ultra Short-Term Bond ETF (TBUX ).
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