• Despite volatility, stock markets finished the first half at all-time highs, while the S&P 500 and Nasdaq are both higher by over 6% year-to-date. Policy uncertainty could resurface in the near term as we approach the July 9 expiration of the 90-day tariff pause. However, we believe the fundamental backdrop remains supportive in equity markets. The Fed easing cycle is likely to resume this fall, but deficit concerns could keep Treasury yields rangebound in the second half. We see value in the seven- to 10-year maturity space for U.S. investment-grade bonds.
  
  The first half of 2025 provided plenty of twist and turns for investors, with policy shifts driving a near-20% decline in the S&P 500, before de-escalating trade tensions, along with resilient economic data, propelled the S&P 500 to a new all-time high before the end of June.1 With the second half of the year likely to bring its own share of uncertainties, we highlight three key themes and corresponding portfolio opportunities to help investors navigate the second half.
  
  
• The first half of 2025 was marked by policy uncertainty, as the U.S. announced sweeping tariffs in early April that threatened to raise the effective tariff rate from 2.3% at the end of 2024 to over 25%, fueling recession concerns.2 A subsequent easing of trade tensions has left the effective tariff rate at approximately 15%, with the potential for further declines depending on the outcome of ongoing trade negotiations ahead of next week's expiration of the 90-day tariff pause on July 9. Encouragingly last week, the U.S. reached an agreement with Vietnam, reducing the tariff rate to 20% (40% on goods that are shipped but that don't originate from Vietnam), down from the 46% announced in early April, fitting with the recent trend of de-escalation.
  
  Although tariff rates have declined from their peak levels, they remain a central focus of the U.S. administration's agenda and are poised to rise significantly compared with previous years. While inflation has been contained thus far, we expect the impact of tariffs to surface in the form of higher prices during the second half, as companies draw down inventories and likely pass on part of the cost to consumers. This could erode household purchasing power and put downward pressure on corporate profit margins, potentially weighing on economic activity in the second half.
  
  The upshot, in our view, is that economic data has proven resilient, supported by a healthy, albeit easing, labor market. This resilience was on display in last week's jobs data, with nonfarm payrolls rising by 147,000 in June, above expectations for a 118,000 gain. Additionally, the unemployment rate fell to 4.1%, while initial jobless claims fell to a six-week low of 233,000.
  
  

  

  Additionally, the proposed One Big Beautiful Bill (OBBA) legislation aims to extend the 2017 tax cuts and introduce new tax breaks for tips, overtime pay, and seniors, among others. For these reasons, while economic growth may slow in the near term, we could see a potential re-acceleration of growth in 2026. The prospect of moderate fiscal stimulus and easing monetary policy should be supportive of economic and earnings growth, in our view.
  
  While U.S. economic growth is slowing, we don't expect it to stall. In our view, this environment is likely to favor stocks more than bonds, and we recommend investors overweight U.S. large-cap and mid-cap stocks, offset with an underweight to international bonds and U.S. high-yield bonds.
  
  At a sector level, we recommend investors maintain balanced exposure across defensive, cyclical and growth sectors, driven by our expectation for an ongoing broadening of leadership in 2025. We recommend investors overweight financials, health care and consumer discretionary, offset with underweights to consumer staples and materials.
  
  
• Since 2010, U.S. economic growth has outpaced most developed markets, contributing to U.S. equity outperformance versus international in 12 of the past 15 years. However, this trend reversed in the first half of 2025, with international stocks—particularly in Europe—leading gains. Expansionary fiscal policy in Germany and deeper rate cuts by the European Central Bank have helped boost European equities and lift regional growth expectations. In contrast, U.S. policy shifts are expected to moderate growth in the near term, narrowing the U.S. advantage.
  
  Despite a narrowing gap in economic growth, U.S. corporate profits are expected to continue outpacing those of international peers. We anticipate stronger U.S. profit growth ahead, likely bolstered by AI tailwinds and a more accommodative policy environment. In contrast, tariffs could weigh on demand for overseas goods, perhaps creating a less supportive backdrop for international earnings.
  
  

  

  A sharply weaker U.S. dollar was another key driver of international outperformance in the first half, with the DXY index falling over 10% amid slowing U.S. growth and concerns about the dollar’s global dominance. However, we believe the dollar could find some support in the near term. U.S. bond yields remain higher than those in most developed markets, particularly Japan and many eurozone countries. Additionally, we don't see a viable alternative to the dollar in the near term, and we believe it will retain its role as global reserve currency. Over the long term, however, the dollar may soften after a 15-year uptrend, reinforcing the importance of global diversification.
  
  

  

  The strong performance from international stocks in the first half highlights the importance of maintaining strategic allocations to international investments as part of a well-diversified portfolio. In the near term, however, we believe the greater opportunity lies in U.S. markets versus international, and we recommend investors slightly underweight international developed large-cap stocks in favor of U.S. large-cap and mid-cap stocks.
  
  In our view, much of the good news behind international markets is reflected in current prices, and ongoing strength in corporate earnings could help provide support to U.S. equities. Additionally, the potential for the U.S. dollar to find support in the near term could provide less of a boost to international returns.
  
  
• We continue to expect 10-year Treasury yields to trade primarily in the 4%–4.5% range. While the benchmark yield could temporarily move outside this range, we believe there are guardrails on both sides.
  
  Despite downside inflation surprises in the first half of the year, the Federal Reserve held its policy rate steady, awaiting greater clarity on the economic and inflationary impact of tariffs. At its June meeting, updated Fed projections showed that the median FOMC member still anticipates two interest-rate cuts in 2025—unchanged from the March projections. For 2026, policymakers now expect just one cut (down from two in March), followed by another in 2027, signaling a more cautious easing cycle.
  
  In our view, the potential stagflationary effects of tariffs—higher inflation coupled with slower growth—place policymakers in a challenging position. However, we expect the Fed to resume rate cuts this fall, potentially putting downward pressure on bond yields.
  
  

  

• A potential offset to lower bond yields driven by Fed easing is the concern over widening fiscal deficits. The proposed tax bill is projected to increase the national debt by $4.1 trillion (including interest) over the next decade. As a result, federal debt held by the public as a percentage of GDP could rise from around 100% today to 130%. Rising debt levels may prompt investors to demand higher yields to compensate for increased perceived credit risk, particularly at the longer end of the yield curve.
  
  We recommend that investors underweight fixed-income investments, particularly international bonds, due to their relatively lower yields, and maintain a modest underweight in U.S. high-yield bonds, where credit spreads remain historically tight, and instead favor U.S. equities. Within U.S. investment-grade bonds, we recommend investors modestly extend duration, with a focus on securities in the seven- to 10-year maturity range. In our view, bonds in this segment may allow investors to lock in higher yields for a longer period compared with shorter-term bonds. Additionally, these bonds may be less exposed to concerns over widening government budget deficits and rising debt levels versus longer-term bonds, e.g. 30-year bonds.
  
  While uncertainty remains, resilient economic data, easing trade tensions, and potential policy support—both monetary and fiscal— offer reasons for cautious optimism. Investors may benefit from staying diversified across growth and value sectors while tilting portfolios toward U.S. equities. Within U.S. investment-grade bonds, we see value in modestly extending duration with a focus on the seven- to 10-year maturity range. As conditions evolve, maintaining a well-diversified portfolio with opportunistic tilts can help investors take advantage of opportunities and market volatility, while staying on track for their financial goals.
  
  
• Final Words: Market indicates Extreme Greed. No new buys. Hold.
  
  

  

  Below is last week sector performance report.
  
  Top 11 Sector Performance for June 30 - July 3rd, 2025:
  
  $XLE S&P Energy Select Sector Index (1.49%)
  $XLK S&P Technology Select Sector Index (2.35%)
  $XLC Communication Svcs Sel Sector Indx (1.51%)
  $XLY S&P Consumer Discretionary Sel Sector In... (2.88%)
  $XLP S&P Consumer Staples Sel Sector Indx (2.51%)
  $XLF S&P Financial Select Sector Index (2.70%)
  $XLV S&P Health Care Select Sector Index (0.95%)
  $XLI S&P Industrials Select Sector Index (2.81%)
  $XLB S&P Materials Select Sector Index (4.09%)
  $XLRE S&P Real Estate Select Sector Index (2.03%)
  $XLU S&P Utilities Select Sector Index (0.83%)
  

  

If you are looking for investment opportunities, you can take a look at our Hidden Gems section, and if you want to see our past performance, visit our Past Performance section. If you are looking for safe and low cost Exchange Traded funds(ETFs), check out our ETF recommendations.

Currrent Shiller PE (see below) is showing overbought conditions as index is far above mean/media and our AryaFin engine is indicating caution. Have a good weekend.