As we reach the midpoint of 2025, Halbert Hargrove Co-CIO Brian Spinelli provided a detailed look at what’s shaping today’s financial landscape. In this year’s Midyear Market Update, Spinelli examined the major market themes of the first half of the year—rising volatility, global strength, a shift away from mega-cap stock concentration, and renewed attention to diversification in portfolio construction.
Below, we break down the key insights and what they may mean for investors heading into the second half of the year.
U.S. Market Review: Equities, Bonds, and Volatility
Year to date through June, developed international and emerging market stocks outperformed other public market segments. High-yield bonds were up nearly 7 percent. The S&P 500 gained 6.2 percent. Commodities, bonds, and cash also posted positive results. Small-cap U.S. equities were the only major area with negative returns.
The S&P 500 experienced an intra-year drawdown of nearly 19 percent during the spring. While uncomfortable, that level of decline is not unusual. Looking at 45 years of history, the average intra-year decline in the S&P 500 has been 14 to 15 percent. Despite that, the market finished higher about 73 percent of the time.
Market corrections often feel unexpected, but they are a normal feature of public equity investing. Having a plan in place to navigate them helps reduce the risk of making short-term decisions based on temporary discomfort.
The Power Shift: Beyond the Magnificent Seven
For the past several years, a small group of large-cap technology stocks drove most of the S&P 500’s gains. These “Magnificent Seven” companies have been significant contributors to total returns in the past three years.
That trend shifted in 2025. As of midyear, the Magnificent Seven made up just over 20 percent of the index’s total return. The remaining 493 companies accounted for almost 80 percent, reflecting broader participation across sectors and sizes.
While the index holds 500 names, its structure has become increasingly top-heavy. The 10 largest companies now represent almost 40 percent of the index and roughly 32 percent of its earnings. This concentration can limit diversification and increase volatility when leadership narrows.
This year’s return profile suggests that more companies are contributing to market strength, a positive sign for investors seeking broader participation and reduced reliance on a small group of high-performing names.
Global Perspective: International Valuations and Currency Moves
International developed and emerging markets outperformed U.S. equities in the first half of 2025. For U.S.-based investors, a key factor behind this outperformance was the U.S. dollar, which declined by about 10.7 percent through June.
This dollar depreciation created a tailwind for international returns. For example, the MSCI ACWI ex-U.S. Index gained 9.2 percent in local currencies but 18.3 percent when measured in U.S. dollars. A similar effect was seen across other developed and emerging market benchmarks.
Even after recent gains, international equities continue to trade at a discount compared to U.S. counterparts. Based on current data, international stocks are priced about 35 percent lower than U.S. equities on a price-to-earnings basis. They also offer dividend yields that are higher than average.
While this statement does not imply abandoning U.S. markets, it highlights the potential benefit of global diversification. Strong fundamentals, attractive valuations, and favorable currency movements have made non-U.S. exposure an important contributor to portfolio performance this year.
Interest Rates, the Fed, and Inflation Uncertainty
Interest rate expectations continue to play a central role in shaping market performance. While the Federal Reserve has held the overnight rate steady, long-term yields have moved based on investor sentiment and market supply and demand. For example, the 10-year Treasury yield has been volatile this year, moving between 3.9 and 4.5 percent.
A gap currently exists between what the Fed has indicated and what the market expects. If the market is overly optimistic about cuts and they do not materialize, volatility may increase.
Inflation also remains in focus. After declining to 2.4 percent in May, inflation rose slightly to 2.7 percent in June. Tariff-sensitive categories such as core goods, food at home, and energy are likely where we will see future impacts. Shelter and auto insurance costs remain stubborn but are showing signs of slowing.
The direction of inflation will play a significant role in determining monetary policy going forward. For now, caution remains warranted, as inflation continues to fluctuate and interest rate forecasts remain fluid.
Debt-to-GDP and Recession Risk: What the Data Says
The U.S. debt-to-GDP ratio has continued to climb. Even with the recently passed tax legislation, current forecasts from the Congressional Budget Office show the country on a rising debt trajectory. The increase is being driven by both slower GDP growth and higher federal borrowing.
Despite concerns, there is currently no recession call. The National Bureau of Economic Research relies on six core inputs to make such determinations. All six remain in positive territory as of midyear. While data has softened, it has not entered negative territory.
Historically, markets have tended to react before recessions are officially declared. This reinforces the importance of focusing on long-term planning rather than reacting to economic headlines.
Portfolio Strategy: The Case for Private Markets
Private markets continue to offer valuable diversification for qualified investors. Asset classes such as direct lending and private equity provide alternative return sources that are less correlated with public markets.
Private investments can also potentially reduce portfolio volatility. For example, direct lending typically generates consistent income while reacting less to short-term public market fluctuations. Private equity, while less liquid, has historically offered strong long-term returns with a smoother return profile when combined with traditional holdings.
These investments are not suitable for every investor and require a longer time horizon. However, for those with appropriate risk tolerance and liquidity needs, private market exposure may offer the potential for enhanced performance and diversification.
Final Thoughts: Stay the Course, Stay Diversified
The first half of 2025 has reinforced several important lessons. Markets are unpredictable, volatility is normal, and strong recoveries can follow sharp pullbacks. Expansions tend to last far longer than recessions, and missed opportunities often occur when investors react emotionally.
By maintaining discipline, staying diversified, and aligning strategies with long-term goals, investors are better equipped to navigate uncertainty. If you have questions about your portfolio or how current market trends affect your plan, we encourage you to contact your Halbert Hargrove advisory team.
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