As tariffs, trade wars and real wars upend the global economy, the path of equity markets remains uncertain heading into the second half of 2025.

Early progress in tariff negotiations with the UK, China and India has helped calm some of the market turbulence, but with the contours of the global trade landscape still evolving and growth slowing in the US, investors should brace for further bouts of volatility.

“I expect stock markets to be very noisy in the coming months, because many companies are frozen in place until they have more clarity on where global trade is headed,” says Cheryl Frank, an equity portfolio manager. “But as the new trade landscape comes into clearer focus, I expect markets to stabilise and a new set of investment opportunities to emerge.”

History doesn’t repeat, but often rhymes

Investors may take comfort in remembering that markets endured tariff-induced volatility in the recent past. In 2018, during President Trump’s first term in office, a series of new tariffs launched against China sparked a trade war that whipsawed markets and dominated headlines, much like today. The S&P 500 Index reacted by falling 4.4% for the year. But as the administration worked out trade deals and consumer spending remained steady, the index recovered sharply in 2019, rising 31.5%. 

Of course, past results are not predictive of future outcomes. The global economy is much different than it was in 2018, and today’s trade war is on a much bigger scale. But as Mark Twain wrote,“history doesn’t repeat itself, but it often rhymes”. And any further progress on negotiations could provide a strong tailwind for stocks.

“Trump’s first term shows the outcome can vary significantly from the initial headlines,” says Martin Jacobs, an equity portfolio manager. “As someone who believes the market tends to go up far more than it goes down, I am not discouraged by this year’s volatility. I view the dislocation as an opportunity to invest in great companies and multiyear investment trends where I have conviction, setting up the portfolios I manage for years to come. ”

Multinationals go multi-local

Just as markets have proven resilient, well-run companies have been able to adapt to even the most challenging circumstances. Multinational companies, for example, may appear to be among the most vulnerable to the current trade headwinds. On the contrary, many are well positioned for them because they have navigated choppy trade waters for years.

“Many multinationals are developing a ‘multi-local’ approach to business, moving closer to customers in the countries where they operate,” says Jody Jonsson, an equity portfolio manager.

In the latest example, German industrials giant Siemens opened a $190 million electrical equipment manufacturing plant this year in Fort Worth, Texas. US companies known for building their products overseas are taking the same approach. Apple recently announced it would spend $500 billion on new US-based manufacturing facilities over the next four years.

That is one way to get around US tariffs. “We’ve seen that globally diversified, multinational companies have the flexibility, resources and management expertise to compete very effectively, even when the ground is shifting beneath their feet,” Jonsson explains.

Multinationals are not the only potential winners in today’s environment. Some domestic companies may also be well positioned to weather today’s uncertain environment. For example, the once stodgy utilities sector has recently been flexing new growth potential. What’s more, domestic utilities are not subject to tariffs and have historically provided a measure of stability during down markets. “A number of trends, including the wider adoption of electric vehicles, growth of data centers and onshoring of some manufacturing, are driving growth of the power grid that we have not seen in two decades,” Frank says.

For example, Constellation Energy, a provider of nuclear power, in June forged an agreement with tech giant Meta to supply power to its data centres in Illinois for the next 20 years. Similarly, electric and natural gas utility CenterPoint Energy is seeing demand for its services rise as a result of population growth in Texas as well as construction of new data centres.

Frank, who expects market leadership to broaden beyond the US tech giants that dominated market returns through 2024, has also been looking for opportunities to invest in select financials, industrials and defence companies that could benefit from a number of developing tailwinds.

New catalysts for growth outside the US

Just as companies have sought to adapt to a changing global order, so too have governments. German Chancellor Friedrich Merz in March declared this to be a “whatever it takes” moment for Europe as Germany, known for fiscal austerity,  announced a large fiscal stimulus focused on defence and upgrading infrastructure.

“There is a greater recognition in Europe that they need to be self-sufficient when it comes to their own defence,” explains Samir Parekh, an equity portfolio manager. “This is likely to have positive ramifications for many companies.”

While it will take some time for the stimulus to be implemented, it represents potential growth opportunity for companies related to defence, building materials and infrastructure. There is also a sense that the regulatory environment may become more pro-investment and open to change as European leaders seek to boost growth.

Corporate reforms are being initiated in Japan and South Korea, and there are signs of stabilisation in China. Thanks also in part to a weaker US dollar, non-US stocks have enjoyed a strong 2025. To 5 June, the MSCI Europe, MSCI EAFE and MSCI ACWI ex USA indexes have all outpaced the S&P 500 Index.

Security could be an enduring theme

As the US and other nations redefine trade relationships and political alliances, governments around the world are taking steps to prioritise security, starting with national defence. Germany revealed that increased fiscal spending includes a larger budget for defence. In December 2024, Japan’s cabinet approved a 9.4% increase in its defence budget.

“The push for security extends beyond defence to the need for reliable energy sources and stable infrastructure and supply chains,” Parekh says.

The US and Europe both seek to expand sources of traditional energy, as well as pursuing development of nuclear power and other alternatives. Along with these goals, the focus on supply chain and infrastructure security could represent growth opportunities for industrials. For example, global giants like Mitsubishi Heavy Industries in Japan, Siemens Energy in Germany and GE Vernova in the US offer products across these categories, including power generation, grid modernization, defence systems and cybersecurity.

Positioning portfolios for future returns

The investment environment has transformed considerably since the start of the year, when markets reflected exuberance after the US presidential election and US tech giants focused on artificial intelligence generated the lion’s share of market returns. In the months since, risks to the economy and markets have increased, but opportunities are broadening. According to Frank, for long-term investors, it will be important to seek balance in portfolios and maintain flexibility.

“This year it is critical to remain nimble,” she says. “In periods of disruption, markets have tended to punish good companies as well as bad. So, a lot of companies will appear to be on sale. I will take these opportunities to try to determine where the long-term value may lie. This can help lay the foundation for strong return potential in the years ahead.”

As turbulent as markets have been this year, circumstances appeared far more dire during the COVID pandemic when industries like travel and restaurants seemed uninvestable. Many of those companies have since recovered. “Living through difficult periods, they can be unnerving,” Frank says. “But our job as active managers is to be prepared and act with conviction when long-term opportunity arises.”