With 2025 nearing its halfway point, Viewpoints decided to check in with some of Fidelity’s leading strategists and managers to hear their latest insights on this unpredictable year—and what further surprises may lie in its second half.
Viewpoints Market Sense anchor Heather Hegedus sat down recently for a conversation with Jurrien Timmer, Fidelity’s director of global macro; Denise Chisholm, Fidelity’s director of quantitative market strategy; and Naveen Malwal, CFA, institutional portfolio manager with Strategic Advisers, LLC, the investment manager for many of Fidelity’s managed accounts.
Here are excerpts from their conversation about why the year has been so volatile, whether the market can “climb the wall of worry” in the second half, and what investments look potentially attractive in this environment. (Watch their full discussion in the video player below.)
Viewpoints: This has been an unpredictable year. How did we get here, and where do things stand in the markets right now?
Jurrien Timmer: Markets are always in a state of price discovery, and always trying to figure out what's going to happen next. When little is changing in the world, the market may not make any large or sudden moves. But when things change a lot, fast, the market has to reprice based on the new available information.
In recent months, a lot has been changing quickly. The election last November was fairly decisive. Markets quickly repriced from a state of uncertainty to a bullish state of animal spirits. Then as we got into the new year, markets became concerned that new tariffs might be more significant than previously anticipated, even raising the risk of a growth shock. When an aggressive tariff strategy was rolled out on April 2, markets had to reprice again, which ultimately brought stocks down by near 20% from their highs. Then, when many tariffs were paused, the market had to reprice again.
The market is fairly efficient at pricing in all that known information. But when that known information is switching from one day to the next, it creates the volatility that we’ve seen.
Viewpoints: The market has already rebounded from that decline, as you mentioned. Historically, what has typically happened after falls of similar magnitudes?
Denise Chisholm: First, to clarify: I’ve been calling the decline “bear adjacent” rather than a “bear market,” because the S&P 500® didn’t fall by 20% or more on a closing basis (only on an intraday basis).
But if you look at all declines of at least 20% since 1957, in 80% of cases, by one year later the market is up. That’s not to say that by the time you hit a 20% decline, the lows are in—because in a bear market they’re usually not. But most often, by a year later the market was higher.
The interesting pattern behind this year’s bear scare is that it was the third-most-rapid decline of that magnitude since 1957. Historically, the speedier the decline to 20%, the more likely the market is to be higher a year later. And importantly, in the most severe bear markets (specifically, those that began in 1973, 2000, and 2007), the market took more than 300 days to reach a decline of 20%. So this year does not resemble those bear markets.
Every bear market has idiosyncratic causes, but 80% of the time, the market is up a year later.
Viewpoints: The market recovery came after some tariffs were dialed back or paused. But is there a risk that tariffs could re-escalate and trigger a recession?
Jurrien Timmer: It’s still a risk, and certainly the issue of trade policy isn’t going away. So far, what we’ve seen with the tariff volatility this year is that soft data such as consumer confidence surveys took a hit, but hard data like jobless claims and economic growth have held up pretty well.
That makes sense because the tariff hit hasn’t been that onerous yet. The economy can manage a 10% tariff rate—it might eat away at profit margins a bit or add some to inflation—but that’s a manageable number. In the eyes of the market, at least, a 50% tariff rate would be a different story (though we haven’t gotten to that point yet).
Denise Chisholm: That’s why it’s so important to understand what the market is already discounting. We don’t know what will happen over the next 3 or 6 months. But even if it’s bad, it might not be as bad as the market is discounting.
That’s when the market can “climb the wall of worry”—when stocks go up even though the news isn’t getting better. Again, looking at history, my research shows that a decline of 20% typically equates to a negative hit to earnings of 15%. So at the April lows, that’s approximately what the market was discounting. Now, we have seen earnings growth estimates come down, and maybe analysts are now expecting positive growth of 7% this year instead of double-digit earnings growth. But not negative 15%. That’s the kind of situation where the news is less bad than expected.
Viewpoints: Naveen, what have you been hearing from clients and how has your team been managing client portfolios through this period?
Naveen Malwal: There have been some emotionally challenging times for investors this year. But what’s been interesting is that diversified portfolios have in many cases done surprisingly well. Even as that volatility was impacting US stocks directly, some other asset classes like international stocks, bonds, certain commodities, and others, have helped diversified clients experience much less volatility.
Many investors are wondering where we go from here. They may hear terms like “slower growth” and imagine bad outcomes. But to go back to the earnings numbers Denise shared, earnings growth of 7% or so would still be positive earnings growth. That might still be a good outcome for markets.
As for the economy, Fidelity’s Asset Allocation Research Team continues to expect moderate positive economic growth. There is a risk of recession, but it’s relatively low. And if you’re expecting moderate economic growth, you might not need to make any drastic changes to your portfolio. What may be helpful to consider is whether you’re investing at the right level of risk for your goal and whether you’re appropriately diversified, with asset classes that can help smooth out the ride.
Another consideration in the current environment is inflation protection. Inflation may start to tick up later in the year, due to tariffs and other factors, and so it can make sense to have some parts of the portfolio that help protect against inflation. This might include investments like inflation-protected bonds, commodities, or real estate investments, among others.
Viewpoints: Dislocation can create opportunity. Denise, what parts of the market are you excited about right now?
Denise Chisholm: Technology stocks. In the downdraft this year, I saw tech stocks getting repriced downward to really interesting valuation levels.
Previously, tech stocks had been hanging out at fairly expensive valuations. High valuations don’t necessarily mean they’ll underperform, but it means investors are then completely dependent on fundamentals: operating margins expanding, earnings continuing to grow, and so on.
Then this year, tech stocks were repriced down to median valuation levels. All of a sudden these stocks, which have historically been very fast growers, don’t look expensive at all. Historically, median valuations have been the sweet spot for subsequent technology outperformance. Tech also has this really rich history of pricing in bad news before it actually happens—and historically, tech has outperformed from median valuation levels even if earnings growth then slows or even if profitability actually declines.
In my opinion and based on my research, what has happened with tech valuations is very different from anything in the past 5 years, and could present an opportunity.
Viewpoints: Naveen, what parts of the market have your team been excited about or emphasizing?
Naveen Malwal: One has been international stocks. That’s an area my team started adding more toward even in the last year. At the time some clients were asking why, because US stocks had been outperforming international stocks for years.
But fast forward to 2025, and so far international stocks have vastly outpaced US stocks. Part of it is the tariff story. But beyond that, international stocks are much cheaper than US stocks, based on price-to-earnings ratios (PEs). We already talked about how earnings expectations have been coming down for US stocks. Internationally, they’ve been improving.
Another idea has been looking for diversification opportunities, particularly among investments that can help manage risk. If you think of a traditional 60/40 portfolio, with 60% in stocks, the 40% doesn’t have to be all bonds. For years my team has been using investments like commodities, real estate, and inflation-protected bonds, at times when the market environment is suitable, to potentially provide further protection from volatility. For investors, this is a space that may need more research, but I believe it’s rife with potential opportunity.
Viewpoints: Let’s end with a few lightning rounds. What was the biggest surprise in the first half of the year?
Jurrien Timmer: Even after 40 years in the business, the speed at which the market can reprice itself down—or up—still leaves me a little breathless sometimes. That surprise will never go away.
Naveen Malwal: The performance of international stocks. I think many investors presumed that tariffs might be worse for other countries. Yet here we are, and international stocks have performed much better than US stocks so far this year.
Denise Chisholm: The size of the original reciprocal tariffs. Going into this, the market’s expectations were 10% to 15% tariffs on imports, I believe. For many regions it came in closer to 30% to 35%.
Viewpoints: What’s the one main thing you’ll be watching to understand where markets are going next?
Jurrien Timmer: Interest rates. The market comes down to 3 things: earnings, interest rates, and risk premiums. Those are all important. But to me, the big one right now is yields on long-term government bonds, due to the power they have to affect valuations in the stock market.
Naveen Malwal: The consumer. Consumer spending makes up about 70% of economic growth in the US. Between changes in tariffs, oil prices, inflation, and more, where does the consumer wind up? The next few months could be really telling.
Denise Chisholm: Credit spreads. That means the difference in yield between riskier, high-yield bonds, versus the yield on the 10-year Treasury. This signals how worried bond investors are about rising bankruptcies or insolvencies. The credit market is often smarter than the stock market. What I’ve been seeing so far is that the credit market is not particularly concerned.
Viewpoints: So far, the conversation this year has been dominated by tariffs and volatility. What’s the next big thing we’re all going to be talking about in 6 months?
Jurrien Timmer: Long-term interest rates.
Naveen Malwal: Earnings is a big one. Also, what happens with inflation. Maybe, with tariffs, prices will go up. Or maybe, consumers will pull back on spending and companies have to pull back on price increases.
Denise Chisholm: Potentially, the return to a bull market. When the market discounts a recession that doesn’t ultimately happen, there can be a lot of upside risk.