With so many headlines flying around—wars, tariffs, political drama—it’d be easy to lose track of what really matters. But WisdomTree’s investment team is urging investors to stay grounded.
In their Midyear Market Outlook1, the firm’s macro and asset strategy team—Kevin Flanagan, Rick Harper, Samuel Rines, Jeremy Schwartz, and Jeff Weniger—provide a detailed assessment of where markets stand, where they may be heading, and why nuance and positioning, not panic, should guide portfolio decisions for the remainder of the year.
Their outlook isn’t about chasing the latest macro scare; it’s about recognizing that, beneath all the noise, the U.S. economy is still standing strong.
As they put it, “While geopolitical developments continue to make headlines and bear scrutiny, the underlying fundamentals of the U.S. economy remain resilient, warding off recession fears.” That calm-under-pressure view shapes the firm’s outlook for the rest of the year.
The Recession That Might Not Come
Sure, the year started off rocky. First-quarter GDP came in at -0.5%, technically a contraction. But context matters: the negative print was largely due to a flood of pre-tariff imports. Strip that out, and consumer spending and business investment looked healthy.
Kevin Flanagan sums it up: “We maintain as a base case that a recession can be avoided but fully acknowledge that the probabilities for an economic downturn have not gone away completely.” It’s a balanced take—realistic, but not alarmist.
Samuel Rines, meanwhile, flags the real wild card: trade negotiations. “The primary risk facing markets” right now, he says, is that all the trade talk doesn’t translate into actual deals. “Rumors do not sign the paper,” he adds, reminding us that until something’s official, it’s just noise.
Inflation’s Mixed Messages, and a Patient Fed
Inflation cooled noticeably in Q2, especially in goods. But that’s not the whole story. The services side—especially housing—has finally shown signs of easing, too. That’s encouraging, but there’s a catch: tariffs might start pushing prices back up.
“The potential challenge going forward,” according to the WisdomTree team, “will be to see if the markets can look through any tariff-induced increases to inflation and focus instead on underlying demand pressures.”
And what about the Fed? In short: no rush. “The Fed is in no hurry to cut rates,” Flanagan says. “Monetary policy is ‘well positioned’ and focused on inflation over labor market concerns.” Translation: unless the data really turns, Powell and team are staying put.
As for the bond market, it’s finding a new groove. Flanagan sees the 10-year yield “in its more historically ‘normal’ territory” but expects “heightened volatility” to stick around.
Stocks Are Hot—Maybe Too Hot?
Markets roared back from their April lows, with the S&P 500 jumping 23% in under three months. That rebound has taken valuations to stretched levels. “The S&P 500’s V-shaped reversal from the April 8 lows sent the market up 23% in less than three months,” notes Jeff Weniger.
Despite the rally, some cracks are visible. Earnings estimates for 2025 look fine—but 2026’s numbers? Maybe a bit too optimistic. “If earnings come in around $280–$285 or so in 2026,” Weniger says, “that would be just fine for most observers.” But the street is currently penciling in $300+, which may be tough to hit.
On the bright side, tensions in the Middle East haven’t rocked the markets like they used to. “The market is coming to a belief system that Middle East wars have minimal effect on stock market volatility—a stark contrast from previous decades.”
That said, WisdomTree still likes U.S. equities, especially high-quality names. They also favor Japan and India for their structural reform stories, while keeping China underweight.
Bonds: Less Flash, More Function
Fixed income might not be exciting, but it’s still essential. Rick Harper says “interest rates are likely to stay structurally higher,” and that means being smart about positioning.
Corporate bonds are pricey, but still solid. “Fundamentals continue to be strong,” Harper says, “and many corporations have taken proactive measures to defend against tariffs.” For yield and value, WisdomTree is leaning toward securitized debt like RMBS and non-agency credit.
On the municipal side, things are looking up. The feared tax exemption repeal didn’t happen, and technicals have turned favorable. That puts munis back in the good books—especially in stable revenue sectors like utilities and water.
Emerging Markets: Still Worth a Look
EM debt may not have the same currency tailwind as before, but the carry is still compelling. “The carry advantage of emerging market local positions relative to the developed market ex-U.S. sovereign debt is sizable,” Harper points out.
Why Alts Still Matter
WisdomTree continues to champion alternatives, particularly trend-following and volatility strategies. In a world where traditional stock-bond diversification isn’t a sure thing, these tools can help smooth out the ride.
“With the possibility that stock-bond correlations could remain in positive territory,” they write, “we believe trend-following and other liquid alternative strategies can play an important role in multi-asset class portfolios.”
A Measured Path Forward
There’s no pretending this market is simple. Risks—especially geopolitical ones—remain. But Schwartz, Harper, and team are clear: fundamentals matter, and staying grounded matters more. As they put it: “Changes in perspective are only a tweet away, and investors must remain alert. Conviction remains challenging in this environment.”
In other words, stay humble. Stay flexible. And don’t lose sight of the basics.
WisdomTree’s Tactical View (as of June 30, 2025):
- Equities: Overweight U.S., Japan, India. Favor quality stocks. Underweight broad ex-U.S.
- Fixed Income: Neutral duration. Overweight securitized credit. Cautious on corporates.
- Alternatives: Keep alts in the mix to manage volatility and boost diversification.
- Macro Outlook: Expect moderate growth, watch the dollar, and don’t overreact to tariff chatter.
As 2025 rolls on, WisdomTree’s message is refreshingly clear: fundamentals are back. Let them be your compass.
1 WisdomTree. “2025 Economic & Market Outlook — At the Midway Point: Returning to the Fundamentals | July 2025” July 2025
- 1 ↩︎
