ETFs to Capture Market Momentum in the Second Half of 2025

Despite a volatile first half in 2025, the S&P 500 rallied significantly, ending up approximately 25% following a tariff pause, with economists anticipating continued market momentum. Four key sectors are highlighted for strong performance in the second half of 2025: Cryptocurrency, benefiting from a weakening U.S. dollar (down 11.28% in six months) and potential Fed rate cuts; Artificial Intelligence and Technology, driven by substantial investments like SoftBank's proposed $1 trillion complex and projecting the global AI market to exceed $1 trillion by 2031; Gold, appealing due to geopolitical uncertainty, central bank purchases, inflation concerns, and the depreciating dollar; and Aerospace and Defense, boosted by a complex geopolitical landscape and record global military spending, which rose 9.4% to $2.72 trillion in 2024.

Analysis

Following a volatile start to 2025, the market demonstrated significant bullish momentum in the second quarter, with the S&P 500 rallying approximately 25% by the end of H1, largely catalyzed by a pause in reciprocal tariffs. This positive sentiment is expected to persist, driven by several powerful secular and macroeconomic trends. A key underlying factor is the pronounced weakness of the U.S. dollar, which saw its worst first-half performance since the 1970s with the DXY falling 11.28% over six months, coupled with expectations of Federal Reserve interest rate cuts. This environment provides strong tailwinds for both cryptocurrency, where Bitcoin has gained 41% since early April, and gold, with related ETFs up approximately 39% over the past year. Concurrently, the Artificial Intelligence and Technology sector continues its powerful growth trajectory, underpinned by massive capital commitments such as the proposed $1 trillion SoftBank complex and the $500 billion 'Stargate' initiative, with the U.S. AI market projected to grow at a 26.95% CAGR through 2031. Finally, a complex geopolitical landscape has fueled record defense spending, which rose 9.4% to $2.72 trillion in 2024, driving the S&P 500 Aerospace and Defense index up 47.86% over the past year.

Key Decisions for Investors

• Given the broad-based momentum, investors should consider tactical allocations across the highlighted themes of AI, cryptocurrency, gold, and aerospace & defense to capture continued market strength in the second half of the year.
• Monitor the U.S. Dollar Index (DXY) and Federal Reserve signaling closely, as the theses for gold and cryptocurrency are highly sensitive to continued dollar weakness and anticipated monetary easing.
• For long-term growth exposure, focus on the AI infrastructure theme, supported by multi-billion dollar private sector investments, while for hedging purposes, gold remains attractive due to geopolitical risks, central bank demand, and its role as an inflation hedge.
• Consider aerospace and defense ETFs as a direct play on escalating global military spending and geopolitical instability, as evidenced by the sector's 47.86% gain over the past year.