S&P500 Forecast: Will Historical Strength and Tariff Relief Lift Q3 Tech Stocks?

3 Key Market Themes to Watch in the Second Half of 2025

After a roller-coaster first half that saw the S&P 500 plunge nearly 20% in April before recovering to record highs by June, the second half of 2025 presents both opportunities and challenges for investors.

The Dow and Nasdaq followed similar patterns, with tech-heavy Nasdaq particularly volatile during the tariff uncertainty. Here are three key themes emerging from the market’s recent performance that could influence trading strategies through year-end.

July’s Historical Sweet Spot Meets Tariff Resolution

July has historically been the strongest month for the S&P 500, averaging 2.5% returns over the past 20 years. This year, that seasonal tailwind could get a major boost from the approaching July 9th tariff deadline. With Trump already striking a deal with Vietnam (reducing tariffs from 46% to 20%) and negotiations ongoing with other major trading partners, markets are pricing in further de-escalation.

The combination of July’s typical strength and potential tariff relief creates what could be an unusually favorable setup for bulls. However, traders should watch for any breakdown in negotiations, as companies remain “frozen in place” until they get clarity on global trade policy.

The “Junkier” Rally’s Institutional Inflection Point

Despite the S&P 500 hitting new highs, this recovery has been driven primarily by retail investors and corporate buybacks rather than institutional money. Morgan Stanley’s Lisa Shalett calls it “a junkier rally, a more speculative rally,” with institutional positioning still below February levels.

This difference creates an interesting situation: if institutions finally decide to embrace the rally, it could provide significant upside fuel. But if retail enthusiasm wanes before institutions step in, the market could face a support vacuum. Watch for signs of institutional re-engagement or retail fatigue as key indicators of the rally’s sustainability.

The International Renaissance Continues

International stocks have dramatically outperformed U.S. markets in the first half, with the MSCI World ex-USA Index tripling the S&P 500’s 5.5% return. This reverses a 12-out-of-15-year streak of U.S. outperformance and reflects several powerful trends: a weakening dollar (down over 10% on the DXY), European fiscal expansion, and attractive valuations abroad.

While U.S. corporate profits are still expected to grow faster, the valuation gap between international and domestic stocks continues to widen. For diversified portfolios, this trend suggests maintaining or even increasing international exposure, particularly as defense spending increases across Europe and Japan create new growth drivers.

Looking Ahead

The second half of 2025 will likely be defined by how these three themes interact. A successful resolution of trade tensions could unlock institutional buying while supporting both domestic and international markets. Conversely, any escalation in trade disputes or signs of economic weakness could quickly reverse the current optimism.

For traders, the key will be staying nimble while taking advantage of July’s seasonal strength and the ongoing shifts in global market leadership.

More Information in our Economic Calendar.