Originally published in Money Matters magazine July 11, 2025

The Experts

What lessons have been learned in the first half of 2025?

Murdo says: The reaction to Liberation Day told us everything we need to know about what global equity markets think about tariffs and barriers to trade. But since US President Donald Trump hit the pause button, markets have regained their poise. In fact, the performance of global equities so far this year has been remarkable given how much uncertainty there has been.

Does that make us nervous? A little. Markets appear to be betting on tariffs being far less severe than first feared. Any reversal of that narrative and we could see some turbulence.

What impact has Trump’s presidency had on markets generally?

Harvey says: So far, the primary focus for markets has been tariffs, with the new US trade regime reshaping global economic and market outlooks. Tariffs are being used as leverage in negotiations, to address trade deficits and to encourage domestic manufacturing. Additionally, tariffs are now viewed as a means to generate fiscal revenue.

After a period of considerable volatility following the initial announcement, the US paused the rollout of reciprocal tariffs for 90 days, and this provided some relief. But there remains significant uncertainty about what happens after the pause comes to an end. It even appears that tariffs could be introduced on specific companies to force domestic production.

What has that meant for investor sentiment?

Paul says: Overall uncertainty has increased given the ad hoc timing and Trump’s numerous announcements on government policy, as well as the potential redirection of policy announcements. This has resulted in large swings across markets resulting in changing geopolitical relationships.

What should our investors be wary of as the year progresses?

Murdo says: Getting caught up in the day-to-day headlines and taking your eye off fundamentals and the long-term picture. We’re in for a noisy news cycle in the months ahead but it’s important to stay focused on what companies are doing and saying. That’s the best indicator of where they will be in five years.

Let’s talk about closer to home. What trends can we expect in Europe?

Paul says: Europe appears likely to increase spending. This may support nominal growth in Europe at a time that US growth, due to fiscal prudence/tightening, will reduce growth in the US. However, this may be offset by continued spending on artificial intelligence (AI) and productivity gains. Overall, we expect an improving growth story in Europe to continue.

Secondly, the demand for power is increasing with these trends and investment in power and grid infrastructure required to keep up with the AI revolution is significant, so we expect this will continue for many years to come.

It was only a matter of time before AI came into the conversation wasn’t it. How do you see that trend developing?

Murdo says: AI is expected to remain a major focus for the market. Until now, much of the excitement has been around the companies enabling AI, companies like microchip designer, Nvidia and Taiwanese semiconductor manufacturer, TSMC. Some market participants are also watching companies that are applying the technology in practical ways and crucially, finding ways to monetise it. We continue to believe the market will reward companies that can provide hard evidence of their ability to harness AI to enhance their products, services and profitability.

ASSET CLASS OUTLOOKS

What does the second half of the year look like for...

Fixed income

Harvey says: We believe markets may be underestimating the number of interest-rate cuts by the US Federal Reserve next year. At the same time, the market’s expectation of the European Central Bank’s rate path seems about right.

Although we anticipate that the Fed will stand firm in the short term, we believe they may eventually need to significantly cut interest rates to bolster growth. The fiscal deficit in the US cannot be expanded much further, and the savings buffer that households accumulated during the pandemic has been gradually depleted. We believe lowering interest rates remains the only viable option to keep the economy on track.

We think this will help to reduce the difference in interest paid between US government bonds and German government bonds by about 0.5% for bonds with a 10-year duration. If we’re right, US bonds might offer better returns and do better compared with German bonds.

In the UK, government bonds (Gilts) are behaving more like US bonds than other European ones. Since the UK was the first to make a new trade deal with the US after tariffs, we believe UK bonds could perform better than German bonds.

Equities

Murdo says: It has been a funny-old few years. It remains a very challenging and unpredictable environment and consumers are feeling it – and if they are feeling it, businesses will be feeling it too.

So, I think company resilience is going to be a big factor; high-quality businesses with the ability to compound wealth through economic cycles. The external environment is going to remain volatile and uncertain for a while yet and I think investors will increasingly reward those companies with the robust cash flows, margins and balance sheets to help them navigate these headwinds.

In the short term, markets can be driven by factors such as rates or conflicts, which means even the best companies in the world won’t always outperform. But we expect the market to recognise quality over longer periods and we observe these companies tend to get stronger and we believe that they will outperform.

Multi-asset

Paul says: Firstly, high levels of fiscal spending may result in a significant sell off in long duration bonds, this might be a result of policy makers not getting fiscal spending under control. A sell-off in bond markets might prompt policymakers to reassess fiscal plans, especially if inflation begins to rise again. This could spill over into equity markets as the yield on 10-year Treasury bonds is the rate of return (cost of capital) that investors use to compare other asset classes against to judge their attractiveness. Thus, a higher risk free rate (10-year Treasury yield) may cause investors to reassess valuations across broader capital markets.

Secondly, geopolitical tensions may result in lower global trade volumes, either resulting in higher prices for consumers or a lack of availability in range of goods and commodities. Lastly, while the headlines talk a lot of the fear of inflation, geopolitics, tariffs and job losses due to AI, we may be on the cusp of a boost in productivity that would allow central banks to bring interest rates down.

This would be a blow to cash returns at a time when some investors have increased their cash holdings due to all the above concerns.

Again, we would highlight the opportunity available for multi-asset investors to be well diversified across asset classes and focus on the long-term opportunities for individual companies as and when the global backdrop becomes clearer.
 

Glossary

Asset class: A grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations.

Assets: In this context, investments held in a portfolio, for example stocks, bonds, property and cash.

Capital: Resources or money used or available for use in the production of more wealth.

Commodity/commodities: An asset in the form of a raw material that can be bought and sold such as gold, oil, coffee, wheat, etc.

Compound(ing): The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings.

Deficit(s): The amount by which a resource falls short of a mark. Most often used to describe a difference between cash inflows and outflows.

Duration: A measure of the sensitivity of a fixed income security or bond fund to change in interest rates. The longer a bonds duration, the more sensitive it is to interest rate movements.

Equity/equities: Shares issued by a company, representing an ownership interest.

Fiscal/fiscal policy: Government policy on taxation, spending and borrowing.

Fiscal stimulus: Government policy on taxation, spending and borrowing designed to stimulate the economy.

Fixed income: Broadly refers to those types of investment security that pay investors fixed interest or dividend payments until their maturity date.

Fundamentals (company): A basic principle, rule, law, or the like, that serves as the groundwork of a system. A company’s fundamentals are factors such as its business model, earnings, balance sheet and debt.

Geopolitical/geopolitics: Geographic influences on power relationships in international relations.

Gilts: Fixed income security issued by the UK government.

Income stocks: Stocks that offer regular and steady income, usually in the form of dividends, over a period of time with low exposure to risk.

Leverage: Borrowing or using financial instruments to increase the potential return of an investment.

Nominal growth: The increase in the value of goods and services produced in an economy, expressed in current prices, without accounting for inflation.

Revenue(s): Often referred to as sales, is the income received from a company’s normal business operations and other business activities.

Safe haven: Refers to assets that investors perceive to be relatively safe from suffering a loss in times of market turmoil.

Tightening: Monetary policy in which a central bank increases interest rates when an economy is growing too fast or prices are rising too quickly.

Treasury/treasuries: US government debt security with a maturity of more than 10 years. Treasury bonds make interest payments semi-annually.

Volatile/volatility: Large and/or frequent moves up or down in the price or value of an investment or market.

Yield: Income received from investments, either expressed as a percentage of the investment’s current market value, or dividends received by the holder.
 

Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA), BNY Mellon Fund Management (Luxembourg) S.A. (BNY MFML) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA, BNY MFML or the BNY Mellon funds.

The value of investments can fall. Investors may not get back the amount invested. Income from investments may vary and is not guaranteed.