Let’s be honest: 2025 has been anything but boring. Markets are moving like a fast-cut movie scene — intense, unpredictable, and hard to keep up with. Jody Jonsson, Vice Chair and Portfolio Manager at Capital Group, summed it up best: “It feels a bit like the title of the Oscar-winning movie Everything Everywhere All at Once.”
And she’s right. We’re living through a moment of massive geopolitical change. Trade ties are fraying, alliances are being redrawn, and old assumptions are no longer safe bets. Capital Group’s 2025 Mid-Year Outlook1 captures this moment with a clear message: the world is shifting, and investors need to move with it.
The Economy: Still Standing, But on Uneven Ground
If there’s one word that defines the current economic mood, it’s uncertainty. Rising tariffs and real-world conflicts have put the brakes on global growth. U.S. GDP actually declined in Q1 for the first time since 2022. Companies are holding back. Ports are slower. Hiring’s cooled.
Darrell Spence, Economist at Capital Group, puts it plainly: “Many companies are hitting the pause button because they don’t know what the rules are going to be a week, a month or a year from now.”
As a result, growth forecasts are getting trimmed:
- U.S.: from 2.2% → 1.8%
- Eurozone: 1.2% → 0.8%
- Canada: 2.4% → 1.4%
- Japan: 1.1% → 0.6%
- Emerging markets: 4.2% → 3.7%
To navigate this mess, Capital Group’s Night Watch team outlines four possible geopolitical trajectories: trade battlefronts, grand bargains, a return of great powers, and assertive nationalism—each with its own set of economic and market implications. As International Policy Analyst Tom Cooney puts it: “It took years to build the post-war order, and it could be several more before a new geopolitical order stabilizes.”
These scenarios aren’t predictions, but strategic guardrails to help portfolio managers stay nimble.
Tariffs: What They Really Mean
Not all tariffs are about trade wars. Capital Group Economist Jared Franz explains they come in four flavors:
- Negotiating tools — temporary, to twist arms on other policies (think immigration).
- Rebalancing moves — to fix trade deficits.
- Decoupling plays — pulling back from overreliance on countries like China.
- Revenue raisers (Funding) — tariffs as taxes, plain and simple.
Franz is blunt: “Tariffs used for negotiating purposes are unlikely to persist, while those that are part of a larger decoupling process could be here to stay.”
Trump 2.0 and Market Memory
We've been here before. Back in 2018, markets slumped on tariff fears, but by 2019, the S&P 500 had bounced back with a 31.5% gain. It’s a reminder that panic often gets priced in faster than reality plays out.
“Trump’s first term shows the outcome can vary significantly from the initial headlines,” says Martin Jacobs, Equity Portfolio Manager for Capital Group U.S. Equity Fund™ (Canada). “As someone who believes the market tends to go up far more than it goes down, I am not discouraged by this year’s volatility. I view the dislocation as an opportunity to invest in great companies and multiyear investment trends where I have conviction, setting up the portfolios I manage for years to come.”
The Fed: Staying Put (For Now)
Right now, the Fed’s in wait-and-see mode. Interest rates are likely to stay in the 3.8% range through year-end. Chitrang Purani, another Capital Group Portfolio Manager, says unless we see a labor market crack or big deflation, the Fed has “good reason to remain patient.”
But with deficits rising, a credit downgrade from Moody’s, and persistent uncertainty, even Treasuries are being looked at more skeptically. Investors might start demanding more yield just to hold them.
Equity Opportunities: Three Big Themes
1. Dividends Are Back in Fashion
Dividend stocks — once overshadowed by high-growth names — are now having a moment. Steve Watson a portfolio manager for Capital Group Capital Income Builder™ (Canada) and Capital Group Monthly Income Portfolio™ (Canada). points out that growing dividends are a sign of “disciplined capital allocation and confidence about future business prospects.”
Examples include:
- CenterPoint Energy (US) – energy demand + dividend growth
- KPN (Netherlands) – telecom, tariff-resistant
- Intact Financial (Canada) – steady payouts since 2004
2. Great Companies on Sale
Volatile markets often throw out good companies with the bad. Chris Buchbinder an a equity portfolio manager for Capital Group U.S. Equity Fund™ (Canada) reminds us that Royal Caribbean crashed 83% during COVID — then rallied more than 1,000% over five years. “The key when great companies go on sale is you have to be prepared to weather some anxiety near term,” he says.
Today’s buying opportunities? GLP-1 drug makers and AI chip companies.
3. Security Spending Is a Global Priority
Nations are getting serious about self-reliance — from defense to energy to cybersecurity. Samir Parekh, a portfolio manager for Capital Group International Equity Fund™ (Canada) and Capital Group International Equity Select ETF™ (Canada) highlights that Japan and Germany are ramping up military budgets, while the U.S. is doubling down on supply chains and infrastructure.
This benefits firms like:
- RTX, Lockheed, GE Vernova
- Siemens Energy, Mitsubishi Heavy Industries
Global Giants Are Thinking Local
Multinational companies aren’t just dealing with trade turbulence — they’re dodging it. Many are building closer to their end markets.
Siemens opened a $190M factory in Texas. Apple is putting $500B into U.S. production. Jody Jonsson puts it this way: “Multinational companies have the flexibility… to compete effectively, even when the ground is shifting beneath their feet.”
Beyond the U.S.: Europe and Japan Step Up
Europe’s Industrial Revival
Germany just dropped a €1 trillion stimulus package. Combined with a strong innovation base (Europe holds 7 of the top 10 global spots), that could fuel a new growth cycle.
Equity Portfolio Manager, Lara Pellini points to firms like EssilorLuxottica, which just launched smart glasses with built-in hearing aids. “It’s a great example of Europe’s underappreciated innovation potential,” she says.
Japan as a Trade Anchor
While the U.S. is turning inward, Japan is playing trade diplomat — striking deals with the EU, U.S., and Asia-Pacific. Their companies are also building plants in the U.S., helping sidestep tariffs.
“Japanese companies have announced about $1 trillion of investment in the U.S.,” says Japan Economist Anne Vandenabeele, though she warns that prolonged tariffs could still slow Japan’s recovery.
Fixed Income: Back to Its Old Job
1. Core Bonds Doing Their Job Again
When stocks tumbled almost 19% earlier this year, core bonds held up. The Bloomberg Aggregate Bond Index actually gained 1%. Diversification is working again.
2. Securitized Credit Is In Play
High-coupon mortgage-backed securities (MBS), ABS, and CMBS offer decent yields without too much rate risk — especially in sectors like housing and warehouses that are still going strong. “The underlying loans have shorter maturities compared to mortgages, and lending standards have tightened over the past few years,” says Xavier Goss, a portfolio manager for Capital Group Multi-Sector Income Fund™ (Canada) and Capital Group Multi-Sector Income Select ETF™ (Canada).
3. Corporate Credit Still Holding Up
Investment-grade and high-yield bonds remain resilient, even with softer growth expectations. Portfolio Manager Tom Chow notes companies like Amgen are deleveraging post-acquisitions, while high-yield names like Charter Communications benefit from steady revenues.
4. Private Credit: The Quiet Workhorse
Private credit — once for the ultra-wealthy — is now more accessible. Yields are higher due to liquidity risk, but with proper due diligence, it’s become a viable diversifier.
Portfolio Manager John Queen suggests pairing it with public bonds: “A blended approach… may provide more balance for some investors.”
5. Munis: Tax-Advantaged Comeback
Municipal bonds underwhelmed early in the year but now offer attractive yields — especially for tax-sensitive investors. Portfolio Manager Lee Chu likes Planned Amortization Class (PAC) bonds, calling them “defensive and attractively priced.”
What Advisors Should Keep in Mind
📍 Position for possibility, not prediction — Prepare for multiple global outcomes with flexible, resilient assets.
📍 Look for income, not just growth — Dividend growers and bond yields are back as ballast.
📍 Go global — again — Europe and Japan are shaping up as bright spots.
📍 Bonds matter again — Diversification is working, and fixed income is paying.
📍 Be flexible — Adaptability — whether in portfolios or business models — will be key to long-term success.
Capital Group’s bottom line? This isn’t business as usual — but it’s not the end of the world either. The game is changing, but the fundamentals still matter. It’s a moment for discipline, conviction, and a willingness to evolve.
Footnotes:
1 Capital Group. "Outlook 2025 Midyear Edition: Long-term perspective on markets and economies." June 2025
