Well, at the beginning of the year, market experts and analysts predicted that 2025 would be a bumpy year for investors, and boy, were they right.
While February saw many of the world’s major indexes break records and peak at all-time highs, March and April saw everything come tumbling down. Not only did we see tech stocks take a battering thanks to the Chinese developed AI app known as DeepSeek, but we also saw Donald Trump implement numerous tariffs and threats of tariffs on many of the US’ trading partners, including China.
This naturally spooked investors and triggered multiple selloffs, plunging the markets to lows not seen since the start of the Covid-19 pandemic in early 2020. Since then, markets have rallied, but the stock market looks set to be anything but stable for the foreseeable future.
Naturally, investors are cautious and are wondering what the rest of the year may have in store. While we don’t have the ability to predict the future, we can look at past history and take educated guesses to help us get an idea of where the markets may be headed.
So, what may the second half of the year have in store for the markets? Here’s a look at 4 things that may happen in H2, 2025.
Interest Rate Cuts are Highly Likely
As a result of rising inflation, the Russian invasion of Ukraine, a global energy crisis, and economies still reeling from the Covid-19 pandemic, 2022 – 23 saw interest rates worldwide be increased again and again.
In the US in particular, interest rates were hiked in a bid to tackle double-digit inflation and bring it down to the FED’s target level of 2%. Needless to say, interest rate hikes are not ideal for businesses and the markets in 2022 took a real pounding, with 2023 looking slightly better.
As inflation began to fall, experts predicted numerous interest rate cuts from the FED, which didn’t materialize. The FED’s Jerome Powell was cautious about cutting interest rates too quickly, with many accusing them of being stubborn, and risking a recession.
Eventually interest cuts were implemented, but not as quickly as many had hoped. Even Donald Trump has called for more rate cuts, though the FED is still holding steady.
Market analysts and experts predict that the FED will implement further rate cuts, with many expecting cuts of a full percentage point by the end of the year. From a market standpoint, this will be welcome news and should trigger a few rallies.
A Trade War Could Trigger Further Selloffs
Following Donald Trump’s tariffs, and threats of tariffs, especially on China, stock markets plummeted, and even entered bear market territory.
While there are of course deals to be made, many countries, especially China, refuse to budge and have implemented tariffs of their own on the US, triggering the start of a so-called ‘trade war’.
Now, if things don’t quieten down, tariffs and threats of tariffs could not only trigger a trade war, but may also result in further selloffs as investors become spooked and look to move into cash until things quieten down.
Some believe that a trade war could also lead to rising inflation, which will then prevent any further interest rate cuts. These things combined could result in the US entering recession, which could result in further bear markets.
Markets Could Rally
While the potential outlook so far has been pretty doom and gloom, that certainly does not mean investors are guaranteed a rough time in 2025. In fact, it could prove quite the opposite.
If trade agreements and deals are made, and if inflation drops slightly, or remains stable and interest rates are cut, markets could very well rally.
2020 saw the markets crash sharply at the start of the year, yet they quickly regained their losses and climbed steadily, finishing the year in the green. That could very well happen here, topped off by a Santa Claus Rally in December.
Add to that, the fact that many investors will have been looking to buy the dip, we could see record returns for 2025, especially as there is so much uncertainty. While the markets tend to hate uncertainty, if things fall into place, we could very well see higher returns, especially as things begin to calm down.
AI Could Stagnate
While tech stocks enjoyed impressive bull runs in 2023 – 2024, some analysts warned that AI stocks helping to drive these gains could very well be overvalued.
AI stocks were very much the sweethearts of the last couple of financial years, but AI is beginning to show its limitations. In early 2025, when news emerged of the Chinese AI app DeepSeek, being developed for a fraction of the costs of AI apps such as ChatGPT, tech markets were spooked and a huge sell off was triggered, plunging the tech-laden Nasdaq Composite into the red.
Historically speaking, it is unlikely that AI stocks will enjoy the huge returns they’ve enjoyed over the last couple of years, for a third consecutive year, so there is concern that returns driven by AI stocks could stagnate.
Don’t get us wrong, AI stocks still have the potential to yield impressive returns, but it’s likely that we’ve seen the peak, for the moment at least.
*Disclaimer* This is not financial advice. Please speak to an expert if you seek professional financial advice. Only invest what you can afford to lose, and know that investment values can go down as well as up.