We’re halfway through 2025, and while markets have recovered from earlier declines, it's clear we're still on a winding road - with uncertainty riding in the passenger seat. Our latest report, Global Insight 2025 Midyear Outlook, offers timely perspectives to help navigate these turns and reminds us of the importance of staying invested. We explore what’s happening, where risks lie, and where opportunities may be emerging in the key themes below.

Equity Markets: Certain Uncertainty

Markets have recovered well from their early-year decline, but uncertainty around tariffs, earnings and interest rates could still cause bumps in the road. We expect major equity markets to reach new highs in the coming months, but the path could be uneven.

We continue to focus on high quality companies with strong balance sheets and consistent earnings. We are maintaining exposure to equities while staying selective with a cautious, watchful approach.

Fixed Income: A short fuse on long bonds

While many central banks have cut rates, long-term bond yields have risen. That is largely due to worries about fiscal sustainability, stronger-than-expected growth in some regions and less appetite from international buyers.

Bonds still play an important role in portfolios, but how they’re positioned matters. We’ve focused your fixed income holdings on higher quality bonds and adjusted duration accordingly to capture the higher yields.

International Equities: A world of opportunities?

For years, U.S. stocks dominated the equity markets but 2025 has brought a shift. Rising tariffs and a weaker U.S. dollar have renewed interest in international markets:

• European stocks have been rising, helped by government spending and easing trade tensions.
• A weaker U.S. dollar has boosted returns for investors holding foreign stocks.
• Countries like Germany, France, and the UK have outperformed the U.S. so far this year.

We have actively rebalanced exposure to international equities before the start of this year and believe your portfolio is well-positioned to capture any benefits that come from shifting markets.

U.S. Debt: Changing facts, updating views

In the past, high U.S. government debt didn’t seem to impact markets. However, the situation is starting to change:

• The federal deficit is now close to 6.5% of GDP, the highest among major economies.
• Bond investors, especially those overseas, are becoming more concerned.
• High debt levels could bring more market volatility and make it harder for the government to support the economy in the future.

The U.S. is still a strong place to invest thanks to its large, dynamic economy, rich natural resources, world-leading innovation and highly skilled workforce. But today's debt levels are a reminder of why it's important to diversify globally. We believe holding the right mix of global investments can protect your portfolio from future risks.

What this means for you

Markets move in cycles and mid-year volatility is not unusual. What's most important is how we respond to it. Now, more than ever, it's crucial to stay invested with a long-term perspective.

The market will continue to take unexpected turns, but like any long journey, it's not about reacting to every curve in the road. It’s about having a clear map, staying buckled in, and adjusting the route when needed. By staying invested and steering carefully, we’re helping you stay on track towards your long-term goals.

If you have any questions on the themes above or your portfolio, please don’t hesitate to reach out to us at hayesvickers@rbc.com.