With the first half of 2025 in the books, an investing expert joined BNN Bloomberg to assess how financial markets have performed so far this year and where they may go from here.
“It’s been a rollercoaster of a first six months of the year,” Michael Dehal, senior portfolio manager of Dehal Investment Partners at Raymond James, said in a Thursday morning interview.
“From early January to the middle of February we saw markets surge, and then from there, markets tumbled 21 per cent into April amid the trade tariffs. From there we had a strong rally into the middle of May and into June.”
Dehal said that despite the record-breaking rally that carried U.S. equities through Thursday’s early close, there are some signs of weakness under the surface that may lead to a correction down the line.
“(During) that rally, the breadth has only been about 60 per cent of the equities in the S&P 500… the momentum has been actually limited to a few stocks in the tech sector,” he said, noting that high valuations remain a concern.
“There are still risks out there. The trade tariffs could come back online July 9. I know (U.S. President Donald) Trump has made a deal with Vietnam and there’s a few other countries that trade deals could come through in the next week or so but there are certain risks that do persist.”
Strength in the TSX
As U.S. markets surged to close out the second quarter of the year, Canada’s benchmark stock exchange also reached record highs, with a broad-based rally that included a number of different industries.
“The (S&P/TSX composite) has outperformed the S&P 500 the first half of the year, led by commodities. In particular, gold and base metal stocks have outperformed, as well as Q2 financials, which provided a boost for the TSX with strong bank earnings,” he said.
“We do expect materials to continue to outperform as trade tensions between the U.S. and Canada ease up.”
Outlook for the rest of the year
Heading into the back half of 2025, Dehal said it’s important for investors to diversify their portfolios as much as possible, especially considering the recent weakness in the U.S. dollar that propped up equities in other markets.
“We had the worst U.S. dollar index performance in the first half of any year since the 1970s, however that did boost up international equities, European equities, emerging markets as well as commodities markets,” he said.
“So, as an investor, for the second half of the year we do expect increased volatility with tariffs, with inflation possibly accelerating and also the (U.S.) labour market… we do expect pullbacks.”
Dehal said he and his team are still constructive on U.S. and international equities this year and will look at any major market weakness as an opportunity to “buy the dip.”
“However, we do caution investors to use diversification – spread your money across different sectors and geographies internationally,” he said.
Tech exposure, economic factors
For investors looking for increased exposure to big U.S. tech players, like those in the “Magnificent 7,” Dehal said it’s still a good time to buy into those companies, as they boast strong fundamentals and growth potential.
“If you look at earnings growth from the S&P 500, the majority has come from the tech sector. In the first half of 2025, the key drivers were tech dominance and artificial intelligence (AI); companies like Nvidia, Microsoft, Meta and Palantir were standout performers in the first half,” he said.
“So, the Magnificent 7, we’ve still got earnings growth, we still like them into the second half of this year, they’ve got earnings power, strong balance sheets and good free cash flow.”
Dehal noted that the strength of the U.S. economy will be one of the most important things for investors to watch in the second half of the year, especially as it pertains to the U.S. Federal Reserve and when it may come off the sidelines to cut interest rates.
“There’s two sides of the story. If the U.S. economy is strong, why do we need rate cuts? This morning, we had job numbers come out; 147,000 jobs were added to the U.S. economy, higher than expected, so that does pull a July rate cut off the table,” he said.
“However, we do expect a cut in September and a cut in December as inflation cools down back to the Fed’s two per cent target and the labour market cools down as we progress into the second half of the year.”
