At the Halfway Mark of 2025, More Reasons to Be Bullish
After a first-half rollercoaster from lows to all-time highs, markets are pointing to further gains in the third quarter. But not all stocks have been equal participants in the rally.
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The first half of 2025 sent investors on a rollercoaster ride. Driven by tariff battles and geopolitical disturbances, the major indexes plunged from all-time highs. Despite this, stocks are ending the first half flirting with new highs.
S&P 500 and Nasdaq Composite
As we near the final trading day of the second quarter, the major indexes are either at or near all-time highs. It was truly a V-shaped recovery for the S&P 500 (left) and the Nasdaq Composite (right).
The sharp decline during March and April created fear, shaking out the weak hands. This led to pain and regret for those who exited the market, who then had to chase stocks higher in April, May and June. This chasing provided additional fuel for the rally.
Both the S&P 500 and the Nasdaq Composite are about to experience a so-called golden cross. This signal occurs when a rising 50-day moving average (blue) crosses above a rising 200-day moving average (red). While the significance of the golden cross is debatable, the signal bodes well for stocks in the coming quarter.
Mega-Cap Domination
Needless to say, both of the above charts are bullish. However, not all stocks are equally bullish.
The Invesco Equal-Weight S&P 500 ETF RSP (left chart below) paints a less enthusiastic picture than the mega-cap Roundhill Magnificent Seven ETF MAGS (right chart below). This market continues to be dominated by mega-cap names like Nvidia NVDA, Apple AAPL, and Meta Platforms META.
Dow Jones Industrials and the Russell 2000
Meanwhile, the Dow Jones Industrial Average (left chart, below) remains well below its all-time highs, but is trending upward. The Dow closed at a three-month high on Thursday.
The Russell 2000 (right chart, below) remains the worst performer of the major indexes. The small-cap index is still trying to break above its 200-day moving average (red), and has been trapped below that key indicator for the past four months.
More Reasons to Be Bullish
The third quarter will likely see at least one reduction of the Federal Reserve's Fed Funds rate. According to the CME's FedWatch Tool, there is a 91% chance of a 25 basis point rate cut by the September Fed meeting. There is an 18% chance of a total reduction of 50 basis points by then.
While many investors would prefer a stronger dollar, the continuing slide in the dollar is making U.S. stocks cheaper for foreign buyers, pulling additional investors into the markets. The dollar's decline is also making U.S. exports more attractive to overseas buyers, which boosts the economy.
The U.S. Dollar Index has been trending lower for most of the year. The index, which pits the greenback against a basket of foreign currencies, recently touched a three-year low.
Bottom Line
Lower interest rates and a falling dollar will act as a tailwind in the third quarter. Traders will be reluctant to sell, with fresh memories of the V-shaped whiplash move that occurred in Q2.
Several major indexes are already at or near all-time highs. As traders used to say in the old days, don't fight the tape.
At the time of publication, Rev Shark was long AAPL and NVDA.
