2025 Mid-Year Investment Review & Outlook (Video)
In this mid-year 2025 market update, Ben Hockema, CFP® breaks down what's driving markets so far this year—and what may be ahead. He discusses why U.S. stock valuations leave little room for error, how bonds are finally looking attractive again, and why Illuminate portfolios remain overweight international equities.
Ben also shares our base case for the second half of the year, including key expectations for stocks, bonds, commodities, and even IPO activity. He explains how we're positioning portfolios on the margins—and why thoughtful rebalancing now can make a big difference later.
Whether you’re wondering if it’s time to sell tech stocks, buy bonds, or just understand the risks ahead, this video provides the clarity you need for smart investing in 2025.
Transcript (Edited for Readability)
Ben Hockema:
Hello, and welcome to our 2025 Midyear Investment Market Review and Outlook. I’m Ben Hockema, founder, advisor, and Chief Investment Officer at Illuminate Wealth Management.
Today, we’re reviewing year-to-date market performance across U.S. and international equities, gold, and bonds. We’ll also look at valuations, discuss opportunities in fixed income, and share a few predictions for the rest of the year.
Year-to-Date Market Performance
As of July 25, 2025, markets have shown strong overall returns—though with significant volatility along the way.
Gold has been the top performer, up nearly 27% year-to-date.
Large-cap U.S. stocks (S&P 500) and NASDAQ tech stocks have both posted healthy gains, with the S&P 500 reaching new all-time highs by the end of June.
Small-cap stocks (Russell 2000) have lagged, while developed international and emerging-market equities have shown steady performance.
Bonds remain roughly flat, up only slightly for the year.
When we look back to January 1, 2020, a $10,000 investment in the NASDAQ would now be worth about $27,500, while the same investment in gold or the S&P 500 would be worth around $21,000. Bonds, by contrast, would have grown to just over $10,200.
The takeaway? Long-term investors have earned their returns by enduring three major bear markets since 2020—each exceeding a 20% drop (2020, 2022, and early 2025). Staying invested has paid off, even through significant volatility.
Bonds and Volatility
Bonds have struggled in recent years as rising interest rates pushed prices down. Remember: when rates rise, bond prices fall. Over the past five years, rising yields offset the income bonds generated, leaving total returns minimal.
Still, bonds remain critical for diversification—providing income and downside protection during equity pullbacks. In 2020 and early 2025, bonds held up well when stocks fell. The exception was 2022, when both stocks and bonds declined sharply together—the worst year in a century for diversified portfolios.
Looking forward, interest rates are now relatively attractive compared to the past 20 years. Short-term, municipal, and Treasury bonds currently offer strong yields, while high-yield (“junk”) and investment-grade corporate bonds do not provide enough extra return to justify their added risk.
With the Federal Reserve expected to cut rates once or twice before year-end, existing bond prices could rise, making fixed income more attractive than it’s been in years.
International Markets: Outperforming the U.S.
For the first half of 2025, developed international stocks have significantly outperformed the S&P 500—up 19.4% versus 6.1%.
That difference isn’t just due to a weaker U.S. dollar, which has fallen about 11% this year. Even when adjusted for currency, international companies have produced stronger local-currency earnings growth than U.S. peers.
International stocks also began 2025 at much lower valuations than U.S. stocks, creating more room for upside. That undervaluation—and improving corporate performance—supports our continued overweight to international equities relative to the U.S.
U.S. Valuations: Full but Not Excessive
U.S. equities are currently trading at a forward price-to-earnings (P/E) ratio of about 22.2, well above their 10- and 20-year averages. This means investors are paying more for each dollar of expected earnings.
If earnings continue to grow (about 5.8% expected through year-end) and valuations stay the same, stocks could rise another 6%. However, if valuations revert to their 10-year average of 19.9, that could translate to roughly a 5–10% pullback, depending on earnings growth.
In short, there’s more downside risk than upside at current valuations—unless earnings keep exceeding expectations.
As a result, we’ve remained underweight U.S. stocks and overweight international equities, where valuations are more attractive. We’re also selectively adding to bonds as a defensive offset.
Bonds: Attractive Again
Compared to the past two decades, yields across nearly all bond sectors are appealing. Cash and short-term bonds are paying more than 80% of their 20-year history, and Treasuries, TIPS, and municipal bonds all look reasonable.
However:
Investment-grade corporates are near record-low spreads (not enough compensation for risk).
High-yield/junk bonds are expensive and don’t justify their risk.
With rates expected to decline modestly, the skew of potential bond returns is now positive—it’s more likely that investors make money than lose money from current levels.
Midyear Outlook and Predictions
While we don’t invest based on short-term forecasts, it’s useful to outline base-case expectations for the rest of 2025:
Gold could approach $4,000/oz.
Commodities tend to move in long 10–20-year cycles. Gold remains strong, and we see potential for continued gains.Energy stocks may rebound.
Historically, energy lags early in a commodity up-cycle but catches up later. Given recent underperformance, energy may outperform broader markets in the second half.International equities likely continue to outperform.
With lower valuations and stronger local growth, the upside remains greater overseas.U.S. bonds should deliver positive total returns.
Higher yields and potential rate cuts support modest price appreciation.IPO activity could pick up.
A revival in IPOs typically signals improving investor confidence and a healthy economy.
Seasonally, third quarters following a strong first half tend to be softer, but fourth quarters often recover and finish positive—a trend we expect to continue.
Final Thoughts
We’re not making major portfolio changes midyear. Instead, we’re:
Trimming some U.S. equity exposure
Maintaining our international overweight
Increasing allocation to high-quality bonds
Keeping steady positions in gold and energy
The combination of solid fundamentals, improving bond math, and reasonable diversification keeps us confident heading into year-end.
And on a personal note—my wife and I are expecting our third child in August, so I’ll be taking some family time. But our team will be here to support you and answer any portfolio questions while I’m away.
If you’d like to review how these insights apply to your portfolio or discuss rebalancing opportunities, schedule a call with our team.
