The unpredictable nature of U.S. policy creates ongoing uncertainty for investors that’s not likely to ease in the second half of the year. T. Rowe Price shared its updated U.S. and global market outlook, diving into the challenges and opportunities investors will navigate in the second half.
“The most important thing is to acknowledge that in the less globalized world ahead, the range and mix of investment opportunities will be different from those to which we have been accustomed,” Eric Veiel, CFA, head of global investments and CIO of T. Rowe Price, said in the firm’s 2025 Midyear Market Outlook. “Successfully adjusting to this new reality will demand heightened vigilance, a willingness to let go of old assumptions, and an ability to take decisive action when required.”
Impacts To The Global Economy Become More Apparent
Tariffs remain the single largest driver of change in the second half. Their economic impact on the U.S. and global stage cannot be understated, and will likely become more apparent in the second half. Even with U.S. tariffs on China held at lower levels, the current 55% will result in slower growth than anticipated at the beginning of the year.
“Businesses face rising input costs, which would squeeze profit margins and force some firms to reduce investment spending,” explained Blerina Uruçi, chief U.S. economist, Tomasz Wieladek, chief European economist, and Chris Kushlish, chief emerging markets macro strategiest. Additionally, the impact of tariffs on consumer goods will erode consumer purchasing power. Currently, consumer spending makes up over 70% of U.S. GDP.
Overseas, China must contend with the economic impacts of U.S. tariffs. While it will likely slow growth this year, China has been reinforcing alternative trade and supply chain routes beyond the U.S. in recent years. A full-scale shift to shipping through other countries could help mitigate tariff impacts. At the same time, the Chinese government will likely step in with policy support to prop up flagging growth.
Knock-on effects of U.S. tariffs also include the impact to the Eurozone. China’s slowing growth would in turn lead to weaker demand for exports from Europe and an increase in manufacturing competition. Additionally, imports from China once bound for the U.S. will likely flood the European market, creating good disinflation, according to the authors.
“Weaker global growth and lower commodity prices may bring further disinflationary pressures in EMs, with commodity producers likely to remain under pressure,” the authors noted.
U.S. Inflation & Risks in the Second Half
The Federal Reserve walks a difficult line this year, balancing unknown tariff inflation impact alongside emerging weakening in the labor force. Their cautious approach could continue in the second half, requiring definitive proof of notable unemployment gains before resuming rate cuts. Ratcheting political pressure from the current administration only muddies the water further.
As such, Tim Murray, CFA, capital market strategist, highlighted a number of inflation offsets in the second half. These include real assets, such as commodities and real estate, as well as inflation protected bonds. Longer-term U.S. bonds and Treasuries are less favorable in the current environment, while U.S. equities come under challenge.
“In a typical economic growth downturn or recession, we would expect U.S. equities to hold up better than international stocks,” explained Murray. “But we believe the underlying dynamics of this year’s slump may be different, leading us to modestly favor non‑U.S. shares.”
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