As we approach the mid-way point of the year, now is a good time to reflect on where we stand today. After all, it's been one of the busiest starts to the year that we can remember from a headline standpoint. But how much has really changed, and where do we go from here?

What’s Happened So Far

In some ways, very little has changed. We entered the year with economic growth slowing in the US and the major equity indices trading near all-time highs. Today, these dynamics remain more or less the same. Both the S&P 500 and Nasdaq are up very modestly year-to-date and are knocking on the door of record highs again. Recent data releases confirm that the labor market is cooling, albeit in a fairly controlled manner. While certain parts of the economy—most notably housing—look particularly weak, the consumer has soldiered on, and earnings have remained robust at the index level.

Yet, it's been anything but a smooth ride. Policy uncertainty spiked as the Trump Administration rolled out its much-vaunted tariff policies and made subsequent adjustments and changes through late spring. This has been compounded by ongoing budget negotiations, which look set to potentially increase fiscal support for the economy in the coming years, but at the cost of rising debt levels. Though major US indices are largely unchanged, this masks that we have seen a significant drawdown (the Nasdaq actually entered bear market territory) and a rapid rebound in markets. Volatility in equity and fixed income markets spiked in April and has steadily risen since the start of the year, reflecting a more uncertain backdrop.

What’s Happening Globally

One particularly noteworthy dynamic has been the shift in equity performance globally. After years of underperformance, non-US equities have massively outperformed US equities, which was partly helped by a strong move lower in the USD. We've seen this for short periods over the last decade-plus, and it has subsequently reversed. Yet, there are reasons to wonder if we are seeing a shift today. From a cyclical standpoint, it's possible that the European and Chinese economies may be bottoming as the US continues to slow. Structurally, we're asking questions about whether conditions have shifted such capital may begin to flow out of the US for several reasons. Notably, a country like Germany—typically a fiscal hawk—has amended their laws to pass a significant spending bill to address deficiencies in infrastructure and defense.

What’s to Come

So, as we move to the back half of the year, we'll focus on several dynamics. For one, the trajectory of the US economy. Specifically, we'll be keeping a close eye on the US labor market. The consumer has remained robust for several years now despite a variety of challenges that have come and gone. Absent a meaningful slowing in the labor market, it's difficult to see this changing. We'll also focus on the direction of sovereign yields and how much higher yields start to weigh on economic activity. We've already seen this playing out in the housing market, but will higher yields start to impact small businesses? We'd also be remiss not to mention policy—both tariffs and the budget. These will have very real impacts on both the real economy and sentiment. Globally, we remain focused on the trajectory of major economic centers and capital flows.

As is often said, there's never a dull moment. This seems as true now as it ever has. With so many unanswered questions, we remain convinced that investors should continue to expect volatility in global financial markets. We believe an active approach is the best way for investors to focus on exploiting opportunities and navigating risks in a dynamic market environment.

Learn more about our outlook at an upcoming webinar

This material contains the opinions of Manning & Napier Advisors, LLC, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.