The first half of 2025 saw stocks acting like a fresh tennis ball slammed down onto a hard court, only to bounce back up sharply with Carlos Alcaraz-style top spin. As the year nears its midpoint, the stock market forecast for the next six months suddenly looks more genial. But shrewd investors will stay agile and watch for unexpected volleys.
The Nasdaq composite index is on a hot streak and now sits a 4% rally away from all-time highs. Meanwhile, the S&P 500 finished Friday at 5,976, less than 3% below its peak as it seeks a floor of support at the psychologically significant 6,000 level. Up until Friday, the Dow Jones Industrial Average was barely in the black for the year, but then Israel's attack on Iran put blue chips underwater for 2025. The question now is, will the ball bounce higher the rest of this year, or develop backspin?
Stock Market Forecast For The Next Six Months
When tariff fears were at their worst in April, major stock indexes such as the S&P 500 were off as much as 17.8% for 2025. In April, the Nasdaq dropped as much as 23.4% year to date. But now veteran economist Ed Yardeni, founder of Yardeni Research, sees a strong chance the S&P 500 will climb to 6,500 by the end of the year. This implies a gain of roughly 7.5% from current levels, without dividends.
During a recent TV interview, Yardeni noted that during the second half of this year, the market already will be looking ahead to economic conditions in 2026. By then, tariff frictions may have eased, putting the U.S. and key trading partners on a friendlier footing.
"I think the market is going to look past it," Yardeni said of tariffs and their impact on the U.S. economy. The recent GDP revision by the Atlanta Federal Reserve Bank, calling for sharp growth of nearly 4% in the second quarter, is one factor suggesting higher earnings and a rosier picture for the stock market forecast for the next six months.
Nevertheless, in every genuine bull market, there always stands a serious wall of worry — even for a stock market bull like Yardeni.
He expressed concern the U.S. could lose access to rare earth minerals, which go into electric vehicles, computers and other critical devices in today's economy. He also wonders if Big Tech might be overspending on data centers fueled by artificial intelligence and the raw materials that go into their construction, including advanced chips, concrete and steel.
Stock Market Performance In 2025
| Index | At April low | At June 13 close |
|---|---|---|
| Nasdaq composite | -23% | 0% |
| S&P 500 | -18% | 2% |
| Dow Jones | -14% | -1% |
| Russell 2000 | -22% | -6% |
The worries don't stop with Yardeni. The Organization for Economic Cooperation and Development, a club of wealthy nations, recently reduced its global economic growth forecast to 2.9% for both this year and 2026, down from a 3.3% increase in 2024. The OECD also sharply disagrees with the Atlanta Federal Reserve Bank, as it expects U.S. GDP to decelerate from 2.8% growth last year to 1.6% in 2025 and 1.5% in 2026.
Homebuilding stocks have fared terribly so far in 2025 as interest rates have zigzagged. Yet the cost of capital remains much higher vs. the near-zero levels back in 2020.
Inflation has cooled, but not enough to convince the Federal Reserve — the world's most powerful bank — to broadcast a clarion call that it's time to cut short-term rates to help boost the economy.
Finally, a sharp ascent by gold this year and a 7% drop in the value of the U.S. dollar, based on the Wall Street Journal Dollar Index, have hinted at mildly declining confidence in American stocks and bonds.
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Never Ignore The Market's Fundamentals
Still, three points may benefit equities and eventually boost the stock market to new highs.
First, over the next 18 months through the end of 2026, Wall Street generally expects solid earnings and sales growth to continue. In such a solid fundamental environment, the key is to focus time and money on stocks with the strongest earnings and sales growth and the highest relative strength within the entire stock market. These companies bounce back quickly from corrections and break out to new highs.
Mark Minervini, two-time winner of the U.S. Investing Championships and a frequent guest on IBD Live, sums up the strategy this way. He credits William Berger, the highly successful growth fund manager who put Denver on the map in the mutual fund industry, with this maxim: After a big market drop, buy tennis balls and avoid eggs. In other words, focus on investments likely to rebound and avoid those that are likely to break.
Second, relative to some gigantic swings over the past several years, the bond market has been an ocean of calm. As of May 30, the Bloomberg U.S. Aggregate Bond Index showed a respectable 2.5% gain year to date, while the Bloomberg U.S. Leveraged Loan Index holds a thin 0.4% return. Simply put, bond investors are getting paid and debt prices are stable.
And third, the prospect for trade deals between the U.S. and its biggest economic partners could convince investors to depart the sidelines and deploy more funds into U.S. financial assets.
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Impact Of Trump Tariffs On Stock Market Outlook
Matt Stucky, chief portfolio manager of equities at Northwestern Mutual Wealth Management, notes the overall tariff rate on goods coming into the U.S. currently stands at around 12%-13%, equivalent to 1.6% of the nation's GDP.
That's somewhat of a relief compared with April 2, when President Donald Trump, amid grand fanfare at the White House Rose Garden, announced scores of tariff rates tailored to each major country. The tariff rate averaged in the mid-20% level, equal to an economic impact of around 2.5%.
"The question is who pays for that," Stucky told IBD in an interview, referring to not only corporations but also distributors within the supply chain and customers. "Likely everyone will pay. This is digestible" for the stock market, he added.
Unless trade talks take a sharp turn for the worse, Stucky says a hard economic landing is becoming less likely.
"It's not a situation where there's a significant need to go to a lower valuation for stocks," he said. Northwestern Mutual had $338 billion in assets under management as of April.
A Recovery In The S&P 500 Earnings Forecast
Stucky pointed out that before April 2, Northwestern Mutual used a $276 earnings estimate for the S&P 500. That's the estimated aggregate of per-share earnings for the 500 companies on the index for 2025.
That forecast plunged from April through mid-May. Then it recovered as Trump decided to suspend big tariffs — which were as high as 145% for China — and give negotiators time to make deals.
Today, with the top-down earnings estimate back up to $275, the S&P 500 now holds a forward-looking 12-month price-to-earnings ratio of nearly 22 times future earnings. Value investors tend to get nosebleeds at such P-E levels.
FactSet announced that as of June 6, the current estimate for earnings growth by S&P 500 companies in aggregate for the second quarter is 4.9%. John Butters, FactSet's senior earnings analyst, wrote that if this prediction proves accurate, "it will mark the lowest earnings growth reported by the index since Q4 2023 (4%)."
The firm noted that at the end of May, however, the forward 12-month price-to-earnings ratio for the S&P 500 was 21.3. That's above the five-year average of 19.9. Go back a decade, and the average forward P-E ratio was 18.4.
Translation: Even the slightest whiff of trouble for future earnings could ruin the stock market forecast over the next six months.
Sector Analysis: Technology First, Energy Worst
On a sector-by-sector basis, information technology, health care and communication services are expected to see the biggest year-over-year profit increases this year, with growth at 16%, 14.9% and 10%, respectively. That comes from a June 4 report by indexing firm S&P Global Market Intelligence.
The weakest of the 11 sectors it covers? Energy stocks are expected to post a 13% drop in profits this year. But analysts see energy earnings bouncing back sharply with a 19.9% surge in 2026.
Keep in mind that most large-cap firms work hard to manage Wall Street expectations. Typically, estimates for earnings and sales tend to drift lower before quarterly results hit the newswires.
For this year's first quarter, Butters noted that with 99% of S&P 500 firms reporting their results thus far, 78% recorded a positive profit surprise. And, 64% produced a better-than-expected revenue number.
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Stock Market Outlook: Don't Forget Interest Rates
Another risk to equities and the stock market forecast centers around Treasury notes. A big sell-off in U.S. government bonds could jack up the cost of money. Such a market change would squeeze corporate profits, while lower rates would allow companies to buy back stock, raise dividends, invest in new technologies, acquire companies and expand into new markets.
"The equity rally faces two looming threats: weakening growth expectations and a potential resurgence in rate volatility," BCA Research wrote in a recent note to clients.
Regarding rates, the threat of higher rates could impact stock prices if investors lose confidence in America's ability to keep paying off its debt. The third biggest expenditure in the federal budget is paying interest on the $32 trillion in Treasury securities held by lenders.
Ray Dalio, founder of hedge fund giant Bridgewater Associates, has argued during media interviews that Congress should strive to get the federal budget deficit to within 3% of annual U.S. GDP. Fiscal discipline at the national level, in his view, would bolster continued confidence in Treasury bonds as the ultimate "risk-free" financial asset.
The yield on the U.S. government 30-year bond spiked to 5.15% on May 22, matching an 18-year high. More than 30 years ago in November 1994, those bonds paid returns as high as 8.16%. Then yields got as low as 0.84% during the pandemic in 2020 before busting out of a downtrend in early 2021. Since that time, yields have carved a strong uptrend.
The Competition With U.S. Stocks: Precious Metals
Another question to factor into the stock market forecast: Can the asset classes that have outperformed U.S. stocks keep their winning streak going?
Gold, silver and copper futures already have posted hefty gains for the year. A weaker U.S. dollar has provided a tailwind since these precious metals are priced into the world's de facto reserve currency.
Gold, which has served as a safe-haven asset for centuries, recently clawed its way to $3,509 an ounce on the New York Mercantile Exchange. Two decades ago, gold traded as low as $418. The precious metal has rallied as much as 33% this year.
"Our bull-case scenario sees gold approaching $4,000 per ounce over the next six to nine months under certain macroeconomic conditions, including stagflation and accelerated de-dollarization," Aakash Doshi, head of gold strategy at State Street Global Advisors, wrote in a recent note to clients. State Street set a 30% probability for this scenario.
SPDR Gold Shares have risen as much as 31% since Jan. 1. The exchange traded fund has been taking a break, sitting within a narrow six-week range.
Oil Prices And Foreign Stock Markets
On the opposite end of the commodities spectrum, crude oil has done horribly.
Some Wall Street analysts say "peak oil" — the notion that petroleum production is reaching its maximum rate — is now a distinct possibility as the world moves further toward electrification. Solar and wind energy continue to expand, and natural gas is seen as a "cleaner" fuel source than petroleum. U.S. dominance in fossil fuel production, combined with an eagerness by many OPEC+ members to expand output, has tilted the balance more toward heavy supply vs. robust demand.
No wonder, then, that light sweet crude oil futures, while climbing off a four-year low of $55.12 a barrel in early April, are still lagging other commodities and U.S. stocks.
On the other hand, the stock benchmarks of some of America's major trading partners, such as Canada and Mexico, have done very well this year despite trade tensions. Institutional investors may think trade with the U.S. will return to normal sooner than expected. Another theory: the USMCA free-trade agreement has created a shield for some North American manufacturers.
The TSX Composite, representing Canadian equities, recently scored all-time highs. In Western Europe, Germany's DAX stock market benchmark is up more than 21% for 2025. Other key market bourses hold high single-digit percentage gains.
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How China Stocks Are Performing
Then there's China. While Chinese equities largely remain in their own "lost decade" since topping out in early 2018, the current year shows much more promise. Take the Hang Seng of Hong Kong. The market cap-weighted index has lurched ahead roughly 23% this year.
Some standout China firms that trade in the U.S. as American Depositary Shares include Shanghai-based Atour Lifestyle, a hotel chain that has made it onto the IBD Sector Leaders list. The midcap stock, boasting an ideal Earnings Per Share Rating of 99 from Investor's Business Daily, recently broke out of a base and hit a high of 34.23.
Qifu Technology, another highly profitable Shanghai-based company and midcap growth stock, has shot 417% higher from its 2022 bear-market low. Its market value recently topped $6.3 billion. Qifu hit all-time highs in March.
The economic landscape in "the Middle Kingdom" is not completely warm and fuzzy, though. Like in the U.S., manufacturing surveys point to contraction in China. The drop in the Caixin PMI reading to 48.3 in May from 50.4 indicates that even the current 10% tariff imposed on all countries doing business in America is weighing on investors.
Recent Performance Vs. Stock Market Forecast For Next Six Months
Meanwhile, first-half gains by the major U.S. large-cap benchmarks have been humdrum.
The Nasdaq composite is up just a fraction for the year. The S&P 500 closed above 6,000 on June 6 for the first time since February, but then slipped back below it Friday. It has risen a measly 1.6% since Jan. 1. The Dow Jones industrials were flirting with slight gains for 2025 before Friday, but now are back underwater.
Of course, who could actually complain about the performance by large-cap and tech stocks over the past several years?
The 2022 bear market wiped out trillions of dollars in shareholder wealth. Yet it also set the stage for some juicy gains. The Nasdaq composite ran bullishly over the bears with a 43.4% gain in 2023, then followed with a 28.6% jump to all-time highs in 2024. Excluding dividends, the S&P 500 advanced 24.2% and 23.3% in those two years, respectively.
Still, those figures mask the intense volatility that active investors saw this spring.
In the days just after Trump unveiled double-digit tariffs for a wide swath of nations, stocks nose-dived. The New York Stock Exchange composite plunged to an April 7 low of 16,820 from 19,395 at the end of March, falling 13% in five trading sessions. The Nasdaq tumbled 14.5% over roughly the same time frame.
Stock Market Volatility
Thus, this year's stock market justifies a comparison with an electrocardiogram monitor. The first four months of 2025 displayed a cardiac arrest-like shock. The swift decline met the textbook definition of a bear market-style correction.
Over that broad and nasty sell-off, the stock market briefly donned a bear suit. The S&P 500 plunged 21.3% from its all-time peak of 6,147. The Nasdaq skidded 26.8% while the Dow Jones Industrial Average slipped from a November high of 45,073 to an April low of 36,611, down 18.8%.
Small caps still act as if they're in the intensive care unit. By the end of May, the S&P Small Cap 600 had fallen 8.8% for the year. But in recent days, the 600 has whittled that decline down to around 6%.
No wonder fear gauges captured a general feeling among many investors to flee for the exits. The Cboe Market Volatility Index, or VIX, soared to as high as 60.13 on April 7. That was the third-highest spike since the Covid-19 pandemic bear market of 2020.
When the VIX spikes, it usually means traders expect further sharp declines. But the crowd tends to be wrong at market extremes. When investors feel highly bearish, they usually are sitting on large piles of cash. Eventually, investor greed sets in, and the cash goes toward buying stocks.
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Lingering Pessimism Bolsters The 2025 Stock Market Outlook
Another encouraging indicator for the stock market forecast for the next six months might be the weekly Investors Intelligence survey of market newsletter writers. The percentage of bulls in the survey plummeted to 23.5% in April.
That was the height of the stock market's sell-off in reaction to President Trump's plan unveiled to enact stiff "reciprocal" tariffs on imports from all of America's major trading partners. That level was sharply below the 35.3% reading of bearishness in April, the highest so far this year.
In recent days, investors have been comforted by a mutual agreement by the U.S. and China to put triple-digit tariffs on each other's goods on hold until at least early August.
Bulls have since increased some. The ratio is currently at 37.7%, but still well below its 52-week peak of 64.2%. Meanwhile, bearishness among market pundits dipped to 26.4% during the June 2 week.
Indeed, since early April, the stock market has rallied furiously, despite signs of a slowing economy and the possibility the White House would follow through on threats of large tariffs. A follow-through day on April 22 by both the Nasdaq and S&P 500 gave the earliest-possible signal that large fund managers were boldly getting back into the stock market.
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Economic Backdrop To 2025 Stock Market Forecast
How strong was the move? Financial advisors at Wealth Enhancement Group's Milwaukee office noted the April-May rally became one of the fiercest rebounds in recent stock market history. It marked only the sixth time since 1974 that the S&P 500 jumped 18% or more over a 25-trading-day span.
In those six instances, the index on average rose 30% over the next 250 trading days. No gain within the samples fell below 11%, according to research by investment managers Bryan and Michael Sadoff.
While the Institute for Supply Management's surveys of manufacturers and service companies pointed to a mild contraction in May, one set of figures doth not make a trend. Also, the labor market remains solid.
In May, employers added 139,000 net new jobs in the U.S., beating the 129,000-job Econoday forecast. While some government jobs have disappeared this year, the private sector continues to hire. Consumer spending has not shown signs of freezing.
"Our base case remains for the U.S. to narrowly avoid recession as the economy navigates persistent policy uncertainty," Seema Shah, chief global strategist at Principal Asset Management, wrote in a midyear outlook for clients. "Encouragingly, this forecast was intact even before the U.S.-China trade truce was announced in early May, as we assumed the U.S. administration would recognize the risks and back away from the economic ledge."
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Stock Market Outlook: A Sector In The Doghouse
Which of the 11 S&P sectors have seen the largest drop? Energy at one point was down a whopping 18.9% for the year. This certainly does not bode well for the stock market forecast for the next six months.
Consider BP, one of the integrated oil majors based in the U.K. Earnings for BP have fallen swiftly in seven of the past eight quarters. For the June quarter, Wall Street sees earnings dropping 38% to 61 cents a share. Such a dismal earnings picture proves a stiff challenge to value investors who seek out bargains based on valuations.
The stock moved higher as the sector jumped on the Iran-Israel conflict; BP is up 7.3% year to date. But the long-term trend in BP shares has remained downward the past two years. Trading near 30, BP still lies 60% off its all-time peak of 79.77 set back in November 2007.
By contrast, the S&P 500 itself recovered from the 2008-2009 bloodbath, triggered by the collapse of the subprime debt market and numerous financial institutions going belly up. After bottoming at 666.79 on March 6, 2009, the index has risen 822%, excluding dividends paid each year.
That's a mind-blowing annual average gain of more than 51%. In terms of a compound annual growth rate, the S&P 500 has ascended a lofty 14.7%. Given such a strong rise, more pullbacks and corrections are certainly bound to come.
2025 Stock Market Outlook: Will The Fed Stay Put?
The possibility that the Federal Reserve will lower interest rates will affect the stock market forecast for the rest of 2025, and of course, hinges on many factors. But some fixed income experts for now see the U.S. central bank in no rush to change course.
According to CME FedWatch, as of June 10, bond traders saw near-zero likelihood the Federal Reserve Open Market Committee would lower short-term interest rates during the upcoming June 18 meeting. The probability of at least one 25-basis-point trim, however, rises to 77% at the Oct. 29 confab.
"Stronger than expected jobs growth and stable unemployment underlines the resilience of the U.S. labor market in the face of recent shocks," Lindsay Rosner, head of multisector fixed income investing at Goldman Sachs, wrote in an email to IBD.
"With the Fed laser-focused on managing the risks to the inflation side of its mandate, the stronger-than-expected jobs report (for May) will do little to alter its patient approach," Rosner said.
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