As the second half of June unfolds, global equity markets sit at a delicate inflection point. The S&P 500 recently pierced the symbolic 6,000 mark, up over 12% year-to-date, buoyed by resilient tech earnings, AI-driven optimism, and receding fears of an immediate recession. But beneath the surface, momentum is beginning to fray – and investors are now faced with a question as old as the market itself: What now?
Calm After the Climb
After the sharp volatility of April – spurred by renewed US-China tariff frictions and hawkish Fed messaging – US equities have resumed a familiar upward grind. Yet this strength conceals a narrow rally: according to Goldman Sachs, more than 70% of the S&P 500’s 2025 gains have been driven by just seven mega-cap tech stocks. Outside this cohort, valuations remain rich and price action uncertain.
Historical patterns also cast doubt on further immediate upside. June is typically one of the least dynamic months for equities, with the S&P 500 averaging a meager 0.2% return, according to data compiled by CFRA Research. Fidelity and Vanguard have both published midyear outlooks suggesting the market may remain range-bound through July, oscillating between 4,850 and 6,000 as it digests inflation data, earnings guidance, and fiscal risks.
Earnings Anchored, Valuations Stretched
Corporate earnings remain supportive – but only just. According to FactSet, S&P 500 companies are projected to grow EPS by 8–10% in 2025, modestly above trend. However, with the index trading at a forward P/E of 21, and the Shiller CAPE nearing levels not seen since the dot-com era, questions of sustainability are surfacing.
“We are now in the valuation danger zone,” warns Lisa Shalett, CIO of Morgan Stanley Wealth Management. “Unless inflation comes down more quickly than expected or earnings surprise to the upside, equities are priced for perfection.”
This is echoed by a June 10 note from Bank of America, which highlights a “fragile Goldilocks regime,” vulnerable to either a growth shock or a rate spike.
Rotating the Risk
While staying fully invested may appear risky, exiting the market wholesale could mean missing continued gains – especially if AI, infrastructure, and re-shoring themes continue to drive select sectors higher. This is where strategy matters.
Small-cap stocks, especially those in the Russell 2000, may offer asymmetric upside. Evercore ISI analysts point to upcoming index rebalancing and potential Fed rate cuts in Q3 as tailwinds. The segment is also less exposed to regulatory and geopolitical risks facing large multinationals.
Financials and industrials are also regaining investor attention. Wells Fargo issued an overweight rating on the banking sector this month, citing balance sheet strength and margin resilience under “higher-for-longer” rates. Meanwhile, defensive sectors – particularly utilities and energy – are benefitting from renewed demand for yield and inflation protection.
International diversification, long an afterthought, is also resurfacing. According to Schwab’s June equity outlook, European and Japanese equities are trading at multi-decade discounts versus US peers, with the added tailwind of currency gains and fiscal expansion.
Tactical Playbook for June’s Second Half
In the current macro-financial climate, investors are advised to:
- Stay invested, but not indiscriminately: Focus on quality growth and dividend payers within undervalued sectors.
- Tilt toward cyclicals and small-caps: Especially as Fed dovishness emerges in July–August projections.
- Maintain hedges: Via volatility options or defensives, especially in portfolios heavily tilted to US large-cap tech.
- Watch the data: June CPI, PPI, and Fed commentary will be decisive for Q3 rate expectations.
Bottom Line
Equity markets may not be at the peak, but they are undeniably priced for optimism. As the second half of June progresses, investors should prepare less for a market breakout, and more for selective rotation, active risk management, and tactical positioning. Complacency may no longer be rewarded – but calculated conviction still can be.
References
- S&P 500 Index Overview
- “US Stocks-Bonds Warnings Flash Amber Again”
Reuters, June 11, 2025 - “Morgan Stanley Shares Chart That Fuels Bullish Outlook”
Business Insider, June 10, 2025 - Bank of America Global Research – Midyear Strategy Outlook
Bank of America, June 10, 2025 - FactSet Earnings Insight – Q2 2025 Edition
FactSet Research Systems, June 7, 2025 - Fidelity Midyear Market Outlook 2025
Fidelity Investments, June 2025 - Vanguard Global Markets Outlook – Summer 2025
Vanguard Research, June 2025 - Schwab 2025 Global Equity Update
Charles Schwab, June 2025 - Wells Fargo Investment Strategy – June Briefing
Wells Fargo Investment Institute, June 5, 2025 - Evercore ISI Small-Cap Strategy Note
Evercore ISI Research, June 6, 2025 - CFRA Historical S&P Monthly Return Data
CFRA Research Database, accessed June 2025