In November 2024, our CIOs met to consider the upcoming year and to prepare for the challenges and opportunities of 2025, identifying the key themes they expected to see play out in the markets and the economy. As we reach the midpoint of 2025—a calendar year that so far has been characterized by significant uncertainty surrounding US trade and fiscal policy decisions—we assess how those themes are unfolding and how well the group anticipated the events of 2025.
A Year of Above-Trend Growth - ★★☆☆☆
What We Said:
U.S. GDP would continue to grow above trend, supported by ongoing industrial policy, restrained inflation, and central banks stepping aside.
What We’ve Seen:
Tariff rhetoric and uncertainty has put significant downward pressure on economic growth so far. U.S. GDP declined in the first quarter, primarily due to increased imports and decreased government spending, as well as businesses stockpiling goods ahead of potential tariffs. If the blended U.S. tariff rate ends up being set at a more benign level, and the U.S. tax bill retains its pro-growth features, companies may accelerate hiring and investment, setting the stage for an upside surprise in economic growth. Conversely, if tariffs prove more punitive or the legislative process falters, businesses may finally act on their weak sentiment, potentially triggering layoffs and a slowdown in activity. Fiscal policy uncertainty has also undoubtedly cast a shadow on growth, with all eyes remaining on the upcoming deadlines regarding legislation and trade policy decisions. The picture is different in other regions; Europe, in particular, has shifted dramatically towards significant fiscal spending on defense and infrastructure which improves the outlook for above-trend growth in that region.
Expanding the Soft Landing by Broadening Real Income Growth – ★★★★☆
What We Said:
Countries and governments that deliver moderate inflation and broader participation in positive real wage growth and positive real revenue growth will increasingly come to define success.
What We’ve Seen:
Real wage growth broadened, especially in the U.S. and parts of Europe, with several European countries experiencing positive real income growth in 2025. In the U.S., wage growth (+0.4% m/m, +3.9% y/y in May) outpaced inflation (+0.1 m/m, +2.8% y/y in May), a dynamic that continues to provide a cushion for many consumers. That said, consumer sentiment failed to keep track for much of the year. It wasn’t until June that we saw a meaningful increase in the University of Michigan Consumer Sentiment Index in the U.S. We discussed the inflationary impacts of tariffs, and while we haven’t seen that impacting consumers yet, there is an expectation that they may still bite depending on where we ultimately land.
Equities: The Market Opportunity Is More Than Seven Stocks – ★★★★☆
What We Said:
The market environment could support a broader market rally beyond mega-cap tech. Value, small-cap, and non-U.S. equities could play catch-up.
What We’ve Seen:
Coming off a year that was completely dominated by the Magnificent 7, stock market performance in 2025 has broadened out, with the S&P 493 delivering strong performance in the first half of 2025. Year-to-date (YTD) through June, the Magnificent 7 stocks returned 2.6% versus 6.2% for the S&P 500 Index (total returns). For the twelve months ending June 30, 2025, the MSCI ACWI Index ex the Mag 7 outperformed, returning 16.6% versus 14.6% return for the Mag 7 (in 2024, the Magnificent 7 returned 48.5% versus 11.8% for the MSCI ACWI index ex Magnificent 7). The percentage of stocks outperforming the index has also increased, with 50% of stocks in the MSCI ACWI Index outperforming for the 12 months ending June 30, 2025, compared to just 35% in 2024. In addition, after decades of lagging, international equities outperformed their U.S. counterparts YTD. However, we believed that many of the Administration’s pro-growth policies would benefit small- and midcap companies and instead, tariff worries (which could significantly impair smaller U.S. companies) had the opposite effect with the Russell 2000 and Russell 2500 indexes down 1.8% and up 0.4%, respectively, YTD through June 30, 2025. Over the second half of 2025, we may see small- and mid-sized companies outperform as the pro-business aspects of the Administration’s One Big Beautiful Bill Act along with de-regulation and, potentially, lower policy rates are expected to support smaller companies and industrials, particularly the manufacturing component.
Fixed Income: Fed Up With Fed-Watching – ★★★★★
What We Said:
Bond markets would shift focus from rate policy to fiscal outlook, with steeper yield curves and more long-end volatility.
What We’ve Seen:
Investors increasingly fixated on deficits, auctions, and Treasury issuance, not just the Fed. Yield curves have steepened and volatility has indeed migrated out the curve as term premium discussion heats up. For the first time in decades, governments in many parts of the world are increasingly relying on fiscal measures as their main policy lever. Germany has unlocked a fifth of its GDP in government spending, and the U.S. (and perhaps the U.K.) governments are quickly reversing course from turning restrictive to delivering additional stimulus. Propelled by an increasing focus on fiscal policy as the chief policy lever in many countries, longer dated developed market sovereign bonds have shot up in the past month or so.
Alternatives: The Art of the Deal – ★★★☆☆
What We Said:
Conditions were ripe for a rebound in M&A activity and for strength in private equity secondaries and event-driven hedge funds.
What We’ve Seen:
Although deal activity improved in the first quarter of 2025, the rebound was abruptly interrupted by Liberation Day and uncertainty over trade policy. While exit activity has improved from 2024 lows, distributions as a percentage of beginning NAV remain significantly below historical averages, reflecting longer asset-holding periods and delayed capital returns to limited partners (LPs). We expect continued market volatility to further postpone distributions, creating attractive investment opportunities for liquidity providers.
Private equity portfolios are experiencing extended holding periods, with firms shifting from quick exits to strategies focused on operational improvements, acquisitions, and long-term growth. This, along with the aforementioned reduced distribution activity, has driven up demand for liquidity.
With fewer exits, general partners are increasingly turning to alternative strategies such as GP-led continuation funds, mid-life co-investments, and custom capital solutions to provide liquidity for LPs without sacrificing the value of high-performing assets in a competitive, uncertain market.
