Drivers Which May Push Stocks Higher In The Second Half Of 2025

Despite prevailing bearish sentiment, markets have achieved a solid first half of 2025, nearing record highs. According to TD Asset Management, continued gains into the second half of 2025 are contingent on sustained strong economic fundamentals, with weakening economic data posing the primary risk to the current rally.

Analysis

Market performance in the first half of 2025 presents a significant divergence, with indices approaching record highs despite prevailing bearish sentiment and notable risks. According to commentary from TD Asset Management, this solid but tenuous rally is highly conditional for the second half of the year. The continuation of upward momentum is seen as being entirely contingent on the persistence of strong economic fundamentals. Consequently, the primary identified threat to the market is the potential for weakening economic data, which could rapidly disrupt the current trajectory. This establishes a cautious outlook where market strength is viewed as fragile and acutely dependent on forthcoming macroeconomic indicators.

Key Decisions for Investors

• Investors should heighten their scrutiny of incoming economic data, as any sign of weakening fundamentals is flagged as the primary catalyst that could derail the current market rally.
• Given the disconnect between market highs and underlying bearish sentiment, it is prudent to evaluate portfolio positioning for resilience against a potential correction driven by a downturn in the economy.
• Maintain a focus on fundamentally strong assets, as these are better positioned to weather a period of economic softening compared to more speculative or momentum-driven investments.