Investing in a post globalisation world
2025 Midyear Market Outlook
What’s ahead for markets
Trump’s tariffs could speed up deglobalisation and regime change
Trump’s tariffs could speed up deglobalisation and regime change
2025 was always going to be a year of change, but the speed and extent of developments have taken almost everybody by surprise. The Trump administration’s trade policies are expected to deliver a supply shock to the U.S. and a demand shock for the rest of the world. There will be a broadening of the opportunity set in equities, both within U.S. markets and from the U.S. towards other regions. In bond markets, higher trend inflation in the U.S. will likely push yields higher, eroding the quality of developed market sovereign bonds—although corporate bonds are heading into the difficult period ahead with meaningfully higher overall credit quality than in the past.
Watch the summary video from Investment Specialist, Ritu Vohora
Revisiting our predictions for 2025
We were right that tariffs would be disruptive and that equity markets would broaden in 2025, but we underestimated the impact of the former on U.S. assets.
We looked back at some of the predictions we made in our 2025 Global Market Outlook last November and scored ourselves for accuracy based on where we are today, almost halfway through the year. It turns out that while we correctly anticipated that tariffs would disrupt markets this year, we did not foresee the impact this would have on U.S. assets. And although we were right to predict that equity markets would expand, small cap stocks have performed less well than we expected.
| Expectation at start of 2025 | How we did | On reflection |
| Geopolitical tensions and the likelihood of new tariffs from the U.S. will reconfigure supply chains |  |
U.S. trade policy proved to be a key factor in shaping markets in the first half of the year |
| U.S. exceptionalism to continue |  |
The U.S.‑induced trade shock was worse than expected, and the German fiscal stimulus package was better than expected; both developments weakened the case for continued U.S. outperformance |
“Expectations at start of 2025” are from our 2025 Global Market Outlook, issued in November 2024. The Scorecard does not reflect all views and expectations covered in that report. “How we did” reflects what we got right and wrong as of the time of this writing. The orange dash indicates we were partially right. Future outcomes may differ materially and the information provided is subject to change.
| Expectation at start of 2025 | How we did | On reflection |
| Earnings growth to broaden beyond U.S. tech stocks to other regions | |
Many international stock markets have delivered gains this year, while the S&P 500 Index and Dow Jones Industrial Average have lagged |
| Small‑cap stocks to make a comeback | |
Small‑cap stocks have not yet performed as well as we expected |
“Expectations at start of 2025” are from our 2025 Global Market Outlook, issued in November 2024. The Scorecard does not reflect all views and expectations covered in that report. “How we did” reflects what we got right and wrong as of the time of this writing. The orange dash indicates we were partially right. Future outcomes may differ materially and the information provided is subject to change.
| Expectation at start of 2025 | How we did | On reflection |
| High yield bonds to present income opportunities | |
High yield bonds have delivered income, and credit spreads have narrowed following tariff announcement volatility, indicating continuing confidence in the asset class |
| Emerging market (EM) corporates and sovereign bonds to benefit from a favorable growth environment |  |
Emerging market debt has delivered mixed performance this year |
“Expectations at start of 2025” are from our 2025 Global Market Outlook, issued in November 2024. The Scorecard does not reflect all views and expectations covered in that report. “How we did” reflects what we got right and wrong as of the time of this writing. The orange dash indicates we were partially right. Future outcomes may differ materially and the information provided is subject to change.
| Expectation at start of 2025 | How we did | On reflection |
| Overweight stocks and cash, underweight bonds | |
We had begun to de‑risk, but not enough; our Asset Allocation Committee is now underweight equities |
| Enthusiasm for artificial intelligence (AI) to take a back seat to other market themes | |
Tech firm valuations are being challenged amid concerns over the timeline for realising gains from heavy AI investment |
“Expectations at start of 2025” are from our 2025 Global Market Outlook, issued in November 2024. The Scorecard does not reflect all views and expectations covered in that report. “How we did” reflects what we got right and wrong as of the time of this writing. The orange dash indicates we were partially right. Future outcomes may differ materially and the information provided is subject to change.
June 2025: Midyear economic outlook
The world’s two biggest economies are expected to be most affected by tariffs, with inevitable consequences for all other regions.
The new U.S. administration’s trade policies could deliver a supply shock to the U.S. and a demand shock for the rest of the world. As a result it seems certain that China and the U.S., the world’s two largest economies, will both experience lower economic growth than projected at the beginning of 2025—and the ramifications of this will be felt across the globe irrespective of any individual trade deals struck.
Global economy buffeted from multiple directions
(Fig. 1) Fiscal reform and deregulation could partially offset tariff impact
Hover or tap the map icon to explore tariff impacts on global economies
As of May 31, 2025.
Actual future outcomes may differ materially from forward-looking statements.
For illustrative purposes only. Source: T. Rowe Price.
June 2025: Midyear equity outlook
The broadening of equity market leadership will likely favour value stocks and select emerging markets.
Market leadership in equity markets has been broadening this year and we expect this to continue. Within the U.S., the spread of earnings growth between large technology stocks and other sectors is narrowing, while value sectors are likely to become more competitive again. Outside of the U.S., India and Argentina stand out among emerging markets, while European equities remain attractively-valued.
Tech stock dominance is fading
The spread of earnings growth between tech and other sectors is narrowing
As of December 31, 2024.
Sources: Standard and Poor’s, Refinitiv, FactSet, UBS. See Additional Disclosures.
1 TECH+ is the Technology Sector including Interactive Media & Services, Interactive Home Entertainment, Netflix from Movies & Entertainment and Amazon.
E = Estimates. Actual outcomes may differ materially from estimates.
June 2025: Midyear fixed income outlook
Corporate bonds are entering a possible economic downturn with historically high credit quality, positioning them more defensively than in the past.
The combination of Trump’s tariffs and the release of the German debt brake will have profound implications for bond investors. Heightened inflation expectations in the U.S. and the increased possibility of a downturn point to a challenging outlook for developed market sovereign bonds, but corporate bonds overall—both investment grade and high yield—feature meaningfully higher credit quality than in the past.
4.4%
10 Year U.S. Treasury yield as of May 31, 20251
EUR 500Bn
Fiscal expansion announced by Germany on March 4, 2025
7.73%
Yield to worst of the U.S. high yield market2
1 Bloomberg Finance L.P. Yield to maturity is the total return anticipated on a bond held to maturity assuming all the securities are held to maturity.
2 As of March 31, 2025. The Yield of the High Yield market is represented by the Bloomberg US HY 2% Issuer Capped Bond Index. Yield to worst is a measure of the lowest possible yield on a bond whose contract includes provisions that would allow the issuer to redeem the securities before they mature. Source: Bloomberg Finance L.P.
June 2025: Midyear China Outlook
Uncovering opportunities amidst tariff truce and beyond
U.S.-China tariff reductions sparked a 17% surge in the MSCI China Index. With exports to the U.S. representing just 3% of GDP, China shows remarkable resilience through domestic consumption and innovation in artificial intelligence (AI), electric vehicles (EVs), and biotechnology, creating compelling investment opportunities despite trade uncertainties.
Key takeaway
Companies with forward-looking strategies and flexible approaches stand to gain market share as the market evolves.
June 2025: Midyear asset allocation outlook
More attractive valuations lead our Asset Allocation Committee to favour international and value equities.
Countries and companies are scrambling to reduce their exposure to tariffs, greatly accelerating deglobalisation. This process will have significant implications for asset allocation as some previously favoured assets become less attractive and others show more potential. In fixed income we favor inflation-protected bonds, while in equities value and international stocks look more attractive.
| Asset Class | Underweight | Neutral | Overweight |
|---|---|---|---|
| Equities |  |
- | - |
| Bonds | |
- | - |
| Cash | - | - |  |
As of May 31, 2025.
For informational purposes only. This material is not intended to be investment advice or a recommendation to take any particular investment action. Actual future outcomes may differ materially from any forward‑looking statements made.
| Region | Underweight | Neutral | Overweight |
|---|---|---|---|
| U.S. | |
- | - |
| Europe | - | - | |
| U.K. | - | - | |
| Japan | - | - | |
| Canada | - |  |
- |
| Australia | |
- | - |
| Emerging Markets | - | - | |
| China | - | - | |
As of May 31, 2025.
For informational purposes only. This material is not intended to be investment advice or a recommendation to take any particular investment action. Actual future outcomes may differ materially from any forward‑looking statements made.
| Style | Underweight | Neutral | Overweight |
|---|---|---|---|
| U.S. Growth | |
- | - |
| U.S. Value | - | - | |
| Global Ex-U.S. Growth | |
- | - |
| Global Ex-U.S. Value | - | - | |
| U.S. Large-Cap | - | |
- |
| U.S. Mid-Cap | - | - | |
| U.S. Small-Cap | |
- | - |
| Global Ex-U.S. Large-Cap | |
- | - |
| Global Ex-U.S. Small-Cap | - | - | |
| Real Assets Equities | - | - | |
As of May 31, 2025.
For informational purposes only. This material is not intended to be investment advice or a recommendation to take any particular investment action. Actual future outcomes may differ materially from any forward‑looking statements made.
The asset classes across the equity and fixed income markets shown are represented in our multi‑asset portfolios. Certain style and market capitalisation asset classes are represented as pairwise decisions as part of our tactical asset allocation framework.
| Sector | Underweight | Neutral | Overweight |
|---|---|---|---|
| U.S. Investment Grade (IG) | |
- | - |
| Developed Ex-U.S. IG (USD Hedged) | - | - | |
| U.S. Long-Term Treasuries | |
- | - |
| Inflation Linked | - | - | |
| Global High Yield | - | - | |
| Floating Rate Loans | - | |
- |
| Emerging Market Dollar Sovereigns | - | |
- |
| EM Local Currency Bonds | - | - | |
As of May 31, 2025.
For informational purposes only. This material is not intended to be investment advice or a recommendation to take any particular investment action. Actual future outcomes may differ materially from any forward‑looking statements made.
The asset classes across the equity and fixed income markets shown are represented in our multi‑asset portfolios. Certain style and market capitalisation asset classes are represented as pairwise decisions as part of our tactical asset allocation framework.
Investment Solutions
China Evolution Equity Fund
Actively managed and invests mainly in a diversified portfolio of shares of Chinese companies and may have significant exposure to smaller capitalisation companies.
Diversified Income Bond Fund
Actively managed and invests mainly in a diversified portfolio of debt securities of all types from issuers around the world, including emerging markets.
Global Focused Growth Equity Fund
Actively managed and invests mainly in a diversified portfolio of shares of companies that have the potential for above average and sustainable rates of earnings growth. The companies may be anywhere in the world, including emerging markets.
Multi-Asset Global Income Fund
Seeks to provide income and long term capital appreciation through investment in a portfolio of income generating global securities.
U.S. All-Cap Opportunities Equity Fund
Actively managed and invests mainly in a diversified portfolio of shares or related securities issued by companies in the United States of America.
U.S. Large Cap Growth Equity Fund
Actively managed and invests mainly in a diversified portfolio of shares from large capitalisation companies in the United States that have the potential for above-average and sustainable rates of earnings growth.
Additional Disclosures
T. Rowe Price calculations using data from FactSet Research Systems Inc. All rights reserved.
Financial data and analytics provider FactSet. Copyright 2025 FactSet. All Rights Reserved.
© 2025 Refinitiv. All rights reserved.
Important Information
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