Perspectives - First half over but what does the second half hold?

The US equity market (S&P 500 Index) hit a record high at the half way point in 2025.  In fact, most assets performed well in the first half, and not just equities.  Corporate and government bond markets made decent progress too, though that doesn’t even begin to tell the story of the last six months.

Indeed, there was significant volatility due to elevated trade policy uncertainty, US government debt concerns and geopolitical tensions, especially in the Middle East.  The more nuanced story begins to unfold if you look at other assets: the US dollar index moved to a three year low and gold finished up strongly in the first half, ending up close to record highs.

Stepping back and trying to look through the market noise, from a macro perspective, economies were broadly resilient (see graph below for the US) and inflation has been largely immune to tariff newsflow so far.  This is perhaps why the US market recovered strongly, especially as the mood music on tariffs is increasingly positive, even if policy uncertainty remains.  Furthermore, in part due to subdued US inflation, there is also a growing belief that US interest rates will move lower earlier, which will be supportive to assets generally, with the exception of the US dollar.

US economic growth continues to show resilience

Source: OUTGAF Index (Philadelphia Fed Business Outlook Survey Diffusion Index General Conditions) ISM vs Philly Fed. Bloomberg Finance L.P.  US PMI Manufacturing index 30.06.2022 – 30.06.2025. US ISM Manufacturing PMI and US ISM Services indices 31.05.2019 – 30.06.2025.

Past performance is not a reliable indicator of future returns.

More broadly, the material weakness in the US dollar, and strength in gold over the period, is also likely driven by the chipping away at US asset safe haven credibility.  This includes policy flip flopping and, potentially, the growing realisation that the US empire is indeed in decline.

What can we say about the second half? Well, despite the S&P 500 Index reaching record highs, there are still a number of debates undecided. For example, where are the following headed: trade policy, government debt levels and inflation?

We continue to believe, as we have done for some time, that it is worthwhile looking at the current environment through the lens of the life cycle of empires.  Specifically, that the US empire is in decline.  This will mean ongoing deglobalisation, increased global conflict, as we move into a multi-polar world, and unsustainable fiscal policy as democratic governments try to fulfil their side of the social contract, including increased defence spending.  We believe that all these things will push inflation back to levels that central banks are unhappy with, as well as chipping away at US exceptionalism.

However, as our regular readers and our investors know, above all else we are pragmatists.  Therefore, in the meantime, we have been adding to the US again, especially big tech, as that’s where positive momentum is most apparent.  We remain short duration in bonds and have a reduced but significant position in gold.

Anthony Rayner

Premier Miton Macro Thematic Multi Asset Team