Investing in a post-globalization world with reconfigured global trade necessitates a careful assessment of market opportunities and risks.
T. Rowe Price has released its midyear outlook for global financial markets for the remainder of 2025. Underpinning the outlook for the next six months is an accelerated trend toward deglobalization, a tariff-driven reconfiguration of global trade, an expected broadening of stock market opportunities globally beyond U.S. equities and mega-cap tech stocks, and a bond market regime change driven by trade policy changes and German fiscal expansion.
Key takeaways from the 2025 Midyear Market Outlook include:
Economics: The global economy is under pressure from multiple directions. Trade war fallout could slow the global economy. U.S. fiscal and tax policy will likely take center stage in the second half of the year. Expect rising costs for businesses and a reduction in consumer purchasing power.
Blerina Uruçi, chief U.S. economist, on global economics said: “The U.S. administration’s tariffs—combined with any retaliatory measures from its trading partners—will deliver a supply shock to the U.S. and a demand shock to the rest of the world, including China and Europe. The severity of these shocks will depend on the outcome of ongoing trade negotiations and legal challenges, but it seems certain that the world’s two largest economies, the U.S. and China, will experience lower economic growth than projected at the beginning of the year—and the ramifications of this will be felt across the globe, irrespective of any individual trade deals struck.”
Equities: The broadening of equity markets should continue, reducing the U.S./mega-cap market concentration of recent years in favor of value stocks and select emerging markets.
Fixed income: The fundamental shift in the global fixed income landscape is manifested in above-target inflation in some developed markets, especially the U.S. Corporate bonds are likely entering an economic downturn with historically high credit quality, positioning them more defensively than in the past.
Also read: Peak Tariff Fears But US Risk Premium Persists
Ken Orchard, head of International Fixed Income, on global fixed income, said: “The U.S. administration’s tariffs and the massive German fiscal expansion have broken historical precedent and shifted the global fixed income landscape, resulting in a weaker outlook for developed market sovereign bonds and a stronger one for credit and some emerging markets. The likelihood of a global recession—with the U.S. leading the downturn—has also increased. However, instead of a traditional recession, what may transpire—especially in the U.S.—is a longer period of subpar growth with both higher unemployment and higher inflation.”
Scott Solomon, co-portfolio manager of the Dynamic Global Bond Strategy, on Australian fixed income, said: “The Australian bond market presents a unique opportunity compared to its global counterparts due to its steep yield curve, wider inflation bands, and fiscal flexibility, which enable the Reserve Bank of Australia (RBA) to adopt a neutral monetary stance. Most of the developed market world doesn’t have that luxury and is dealing with questions around tariffs, high deficits, and inflation. In the event of a global economic downturn, Australian bonds could respond favorably and provide portfolio diversification benefits.”
Multi-asset: Inflation protection and equity diversification will receive renewed emphasis in T. Rowe Price multi-asset portfolios. Inflation protected bonds and real assets can provide effective hedges against expected inflation. More attractive valuations signal favoring international and value equities in determining multi-asset portfolio allocations.
Tim Murray, Capital Markets strategist, on asset allocation, said: “In times of rapid geopolitical change, we tend to lean more heavily than usual on asset class valuations when making portfolio allocation decisions. Even after the concentrated selling pressure on growth stocks and value’s relative outperformance in early 2025, value stocks look relatively more attractive than growth stocks moving forward. In a typical economic growth downturn or recession, we would expect U.S. equities to hold up better than international stocks. But we believe the underlying dynamics of this year’s slump may be different, leading us to modestly favor non-U.S. shares.”
While there continues to be a place for both active and passive management in investors’ portfolios, this challenging market environment, including higher interest rates, more volatile markets, and greater policy uncertainty, supports the conditions for active managers to outperform.
