The first half of 2025 was a mix of storm and sunshine for US stock markets. During this period, investors were buffeted by the Trump administration's aggressive trade policies, personal outbursts, and surprise decisions, while simultaneously breathing a sigh of relief thanks to artificial intelligence investments, the easing of crypto regulations, and strong earnings seasons. Trade war fears, which surged at the beginning of the year, sent markets reeling. With the tariffs announced in early April, the S&P 500 fell 12% in two days, while the VIX index surged to 45—a level of volatility not seen since the pandemic. However, this sharp decline was also accompanied by a nearly equally rapid recovery.
Analysts have now coined a term for these fluctuations: TACO (Trump Always Chickens Out). Markets have begun to almost completely ignore the U-turns that follow threats. In this new "Trump cycle," investors have sought to navigate data, pricing, and momentum. The S&P 500 finished the first half of the year with a 6.2% increase, while the Nasdaq gained even more, and stock markets closed near record highs.
While the first half of 2025 was dominated by high volatility, policy-related uncertainties, and volatile price movements, what was striking was that US stock markets rebounded after this turbulent period, with the S&P 500 once again approaching its historic highs by mid-year. This development raised the same question for investors as they entered the second half: Is this rally sustainable?
First, it's important to understand the current market pricing environment. While the indices are nominally high, this rise is not broad-based. Many stocks are still performing limited compared to the end of 2024. The driving force of the indices is provided by major technology stocks and growth-oriented companies focused on artificial intelligence. On the other hand, the defense, energy, financial, and consumer sectors are experiencing a more moderate trend. So, we face a dual-track market structure: on the one hand, rapidly pricing narrative themes, and on the other, large-cap assets that still offer a discount.
Expectations for the second half are shaped by both economic and political developments. Among the most critical topics are the direction of the Trump administration's trade policies, whether the Fed will cut interest rates in the final quarter of the year, and the sustainability of public-private investments in artificial intelligence.
Trump's retreat after his aggressive rhetoric is now perceived as a safety valve for investors. This, in turn, increases the tendency to view sharp pullbacks as opportunities. Another point for investors to pay attention to is the extent to which earnings announced in the second half of the year will support narrative pricing. While companies with strong narratives experienced sharp gains in the first six months, the extent to which these pricing aligns with underlying revenue and profitability data will determine whether stocks can maintain their current levels.
Artificial intelligence, cloud computing, and digital infrastructure companies will be particularly under scrutiny in this regard. On the macroeconomic front, the US economy remains resilient. While unemployment is low, consumer spending is strong, and manufacturing indices are signaling moderate growth, the continued high interest rates are putting pressure on interest-sensitive sectors like housing and construction. Expectations of a potential Fed interest rate cut could offer upward potential in the valuations of small and medium-sized companies. Therefore, support from a broader spectrum, not just large technology companies, is needed to trigger a broader rally.
The investment theme for the second half of the year is likely to be "selective growth." This means that there may be an increased focus not only on companies with strong narratives but also on sectors with strong earnings outlooks and attractive valuations.
The first half of 2025 saw two distinct narratives being written simultaneously in the US stock markets. On the one hand, there was an almost bubble-like rise in high-beta stocks centered around artificial intelligence and digital infrastructure. On the other, there were giants experiencing steady growth but remaining relatively quiet, as well as sectors whose valuations are still not fully priced. This structure offered investors both momentum and value opportunities simultaneously.
The market experienced high volatility in the first quarter of the year due to the Trump administration's successive trade decisions and geopolitical tensions. The sharp sell-off at the end of March caused short-term declines in many indices, particularly in the technology and automotive sectors. For example, the S&P 500 lost 12% of its value in just two days between April 3rd and 4th, following Trump's tariff announcement on "Independence Day." However, Trump's retreat and calls for negotiations in mid-April brought about a sharp recovery.
Stock-based divergences also became more visible from this point onward. In the first half of 2025, companies with high growth and strong narratives stood out. Companies linked to artificial intelligence infrastructure were again at the forefront. Large technology giants, on the other hand, saw more moderate but steady gains. Interest rate-advantaged and defensive sectors within traditional sectors also attracted attention. During this period, investors invested in narratives shaped by political decisions and visionary statements rather than financial results.
Despite this rise, the overall market showed a striking sign of "shrinking leadership." Although the S&P 500 is nearing its peak again, this performance was driven by only a limited number of stocks. More than 70% of the index is either flat or trading in negative territory compared to the beginning of the year. This situation highlights the need for a broad-based rally in the second half of the year. Otherwise, the risk of a sharp pullback in stocks trading at high valuations could increase with even a minor negative catalyst. The mid-term summary tells us this: we are in a period where investors must seek clear answers not only to "what rose," but also to "why did it rise, and is it sustainable?" The rise experienced in the first half of the year was shaped by powerful narratives and short-term political shocks. However, if these narratives are not substantiated in the second half, a return to rational pricing may be inevitable.
One of the key dynamics driving pricing in US markets in the first half of 2025 has become not only sector-based but also thematic. In other words, investors have positioned themselves around themes like artificial intelligence, infrastructure investments, and data center expansions, rather than classic segments like technology or industry. This has transformed performance into a process shaped not only by the balance sheet but also by narrative and capital flows. Artificial intelligence has become the undisputed leader of this process. Capital flows surrounding companies like Meta, Microsoft, and Nvidia have impacted not only the companies directly developing AI software or models, but also the entire ecosystem providing the infrastructure needed to run these systems.
In particular, the US-launched $500 billion Stargate initiative institutionalized the influx of government-backed capital into this field. Both chipmakers and data center providers benefited significantly from this influx. For example, CoreWeave surged over 330% in the first half of the year, becoming the strongest AI infrastructure provider on investors' radar. The company's GPU-based, high-capacity data center infrastructure was supported by long-term agreements with major customers like OpenAI, providing investors with clear growth visibility.
Nvidia, despite modest returns, remains central to system architecture. The fact that most new orders, along with the Blackwell architecture, are slated for H2 raises expectations for stronger momentum in the second half of the year. AI-related cloud services have also become a renewed focus. Oracle's valuation increased by nearly 30% in the first half of the year, driven by the company's strategic partnerships with both the public sector and AI developers. Oracle is expected to acquire $40 billion worth of chips from Nvidia.
Microsoft's Azure platform, along with Google Cloud and Amazon AWS's AI infrastructure-specific solutions, have also intensified corporate demand. However, this technological growth isn't limited to software or hardware. A new investment narrative has emerged in the energy sector. The enormous electricity demand created by AI applications in data centers has brought traditional infrastructure companies and energy producers back into the spotlight. According to Jefferies estimates, data center electricity consumption will increase by 25% by 2030 and 78% by 2050. This increase has led utilities to spend a record $212 billion this year. Investors are already pricing in this outlook.
At this point, data center REITs like Equinix, Digital Realty, and Applied Digital are gaining prominence, while utilities like Exelon and NextEra are also beginning to capitalize on the demand for next-generation infrastructure. Meanwhile, small modular nuclear reactor companies like Oklo (OKLO) and NuScale (SMR) and uranium mining stocks have also found a place in portfolios despite high volatility. Quantum stocks have similarly benefited from this outlook. The common thread among these themes is that they carry investment signals not just of temporary trends but of structural shifts. Capital is no longer driven solely by balance sheet strength, but by strategic long-term positioning.
The sustainability of public investments in AI infrastructure, particularly despite political uncertainty, is transforming this theme from short-term speculation into a corporate growth story. But is this trend likely to continue in the second half? It appears that if interest rate cuts begin and electricity demand continues to rise as predicted, AI and infrastructure themes will continue to become core building blocks of investment portfolios.
The first half of 2025 was a period of "double-layered" performance in US markets. On one hand, there was a rally in high-beta stocks exposed to themes such as AI, data center infrastructure, and digital payment systems, while on the other, there was a cautious rise in more established and mature sectors. This difference was evident not only across sectors but also across companies.
One of the most striking performances of the year came from Circle, with an extraordinary 618% rise. As the company's position strengthened amidst stablecoin infrastructure developments and the restructuring of digital finance, investors quickly priced in the return potential of this transformation. Similarly, the 331% surge of CoreWeave, one of OpenAI's suppliers, was another indicator of the appetite for AI infrastructure. The rise of these two companies clearly demonstrated how responsive investors have become to narratives.
Furthermore, stocks such as Robinhood, Palantir, and Cloudflare were also targeted by theme-based investments during this period. Robinhood's surge of over 120% driven by platform developments and retail investor interest, Palantir's role in public-private sector digitization, and Cloudflare's position in data security solutions reflect investors' growth-focused selectiveness. This performance was supported not only by speculative narratives but also by strong fundamentals-based growth. Turning to larger stocks, Netflix returned over 43% thanks to the diversification of its content strategy and ad-based growth. Meta rose 21%, fueled by AI-enabled ad targeting technologies.
Microsoft gained over 16% thanks to the synergy of Office and Azure. Oracle was one of the best-performing mega-cap stocks of the year. The company directly benefited from AI investments, posting a nearly 30% premium. Nvidia and Broadcom, on the other hand, displayed a more flat but strong position. The shift in order flow to the second half of the year has created a positive pricing backdrop for the second half of the year. The financial and consumer side presented a calmer but more resilient picture. JPMorgan rose 18%, benefiting from the high interest rate environment. Visa continued its growth in the payments ecosystem. Defensive consumer stocks like Costco delivered double-digit returns thanks to high membership loyalty despite inflation.
The first half of 2025 was a unique period shaped not only by economic indicators but also by political surprises. Market volatility is now determined by immediate political moves and immediate reactions to them, rather than classical cyclical factors. At the center of this period was not a rule, but a habit: TACO. This acronym, now half-seriously adopted by Wall Street, has fundamentally changed how investors perceive political risks. In this new regime, the Trump administration starts aggressively but often backs down. Tariff threats, social media outbursts, decisions that are enacted but quickly suspended...
All of this creates a huge buzz, but this buzz rarely translates into lasting damage, and the market is now anticipating it. The "tariff tsunami" of the first quarter was the clearest example of this. In February, the successive tariffs imposed on China, Mexico, Canada, and Europe dragged the S&P 500 down 12% in just two days. However, the subsequent 90-day moratorium, statements about "trade peace," and "signals of conciliation" from the White House propelled the index higher, recovering all its losses within 10 days. During this period, when the VIX volatility index surpassed 45, investors were not only fearful but also seeking opportunities.
These short cycles also changed investor behavior. What would once have been labeled "risk aversion" has now evolved into a "drop is a buying opportunity" reflex. Sometimes this reflex isn't based on data or analysis, but simply on the assumption that previous cycles will repeat. And it often works. However, this regime doesn't simplify investment decisions; on the contrary, it complicates them. Because the question investors now need to answer isn't "Will Trump do this?" but "When will Trump back down?" And this goes beyond classical risk analysis, relying more on behavioral and political analysis. Institutional investors have adapted to this situation.
Large funds learned to price successive presidential decisions as "temporary shocks." The equity risk premium began to show no lasting reaction to these temporary disruptions. This led to the "shock and recovery" model becoming almost an investment strategy in its own right. The TACO regime also pushed sensitivity to Fed policies into the background. This is because the source of market volatility is no longer the interest rate path, but the president's morning social media post. This has led to a renewed emphasis on old tools like technical analysis, news feed reading, and market instinct.
However, it's important to remember: This model is unsustainable. Every TACO can end at some point. If a decision isn't reversed or a crisis continues to grow, the market could experience a real shock. Therefore, the most important lesson from this period is this: Volatility may be temporary, but investor preparedness must be permanent.
In the second half of the year, expectations are shaped not by a single channel, but by a triple lens: the macroeconomic outlook, sectoral divergence, and political risk management. On a macro level, the US economy is currently safe from the risk of a "hard landing." The Atlanta Fed's second-quarter growth forecast remains strong at 2.9%. While consumer spending is slowing, the labor market is resilient. While this is important for maintaining corporate profits, inflation is still out of the Fed's comfort zone. This means the market's hoped-for interest rate cut cycle may be delayed. The most important driver of the market in the second half of the year will be the shaping of trade relations. While the preliminary agreements signed by the US with Vietnam, Mexico, and the UK have reduced uncertainty, the dispute with Canada over the digital services tax could unsettle the market again. Trump's tendency to suddenly impose tariffs leaves a "TACO exception" alongside any positive expectations.
Another area that should be closely monitored, though less talked about, is mid-cap and small-cap growth stocks. If the Fed holds interest rates steady, the pressure on these companies' cash flows could ease. The second half of the year could be a "comeback season," especially for companies with strong balance sheets that were held back by valuation pressures in the first half. Despite this potential, however, there are risks that should be closely monitored:
1. Stalled trade negotiations: Potential problems with Canada and India could lead to new tariffs and technology transfer restrictions.
2. Downward revisions to profit expectations: The decline in CEO confidence indices could signal a cautious stance on future capital expenditures.
3. Geopolitical surprises: The fragility of the Iran, China, and Taiwan pipeline remains. Any significant development could abruptly reverse risk appetite.
4. US budget balance and debt risk: Trump's expansionary fiscal policies could further strain already deteriorating debt dynamics.
5. Overvaluations: The S&P 500's 12-month forward P/E ratio has reached 22. These levels increase the risk of a potential correction if growth slows. In short, the market may continue to rise in the second half of the year, but this path will be more selective, cautious, and cautious than in the first half.
The first half of 2025 brought about a thematic and selective pricing rather than an index-based rally. This outlook could also be a guide for the second half. Investors are now looking for companies that not only have high growth potential but also have business models resilient to economic volatility. In this context, certain sectors and themes are gaining prominence. Artificial intelligence remains one of the most powerful narratives of 2025. However, this time, the focus has shifted from narrative to infrastructure.
Semiconductor manufacturers such as Nvidia, AMD, and Broadcom, as well as cloud infrastructure providers such as Microsoft, Oracle, and CoreWeave, are among the companies benefiting most from increased data center investments and GPU demand. Large technology companies, on the other hand, stand out with their strong balance sheets and diversified revenue streams. Giants such as Netflix, Meta, and Microsoft; They offer reasonable options for investors seeking both growth and protecting their portfolios during volatile periods. These companies' defensive stances could become even more pronounced, particularly if interest rate cuts are delayed or implemented gradually.
On the finance and payment systems side, companies like JPMorgan, Visa, and Mastercard are attracting investors' attention due to their sensitivity to the global trade cycle and high profitability. In a scenario where interest rates remain high, banks can maintain their earnings, while a rate cut could lead to increased credit expansion and increased transaction volumes. Furthermore, the second half could also present an opportunity for mid-cap growth stocks, which have been under pressure for a long time. These companies, which have lagged in high interest rates, could become more attractive if the rate cuts begin. It's especially important to be selective in sub-segments like software, medical technology, and renewable energy. Finally, if geopolitical tensions re-emerge, sectors like defense, energy, and gold mining could gain prominence. These stocks provide portfolio protection during periods of market risk-off and can generate strong price action thanks to limited supply dynamics.
The information, comments and recommendations contained herein are not within the scope of investment consultancy. Investment consultancy services are provided within the framework of the investment consultancy agreement to be signed between brokerage firms, portfolio management companies, banks that do not accept deposits and customers. The comments in this article are only my personal comments and these comments may not be appropriate for your financial situation and risk return. For this reason, investments should not be made based on the information and comments in my articles.
