Our investment outlook for July 2025

This article was written by Thomas Becket and originally published by Canaccord Wealth. 

The latest outlook from our specialists on 2025’s key investment themes

Searching for investment stability in an unstable world

2025 has brought no shortage of uncertainty, from geopolitical shocks to economic instability. Despite the headlines, markets have largely pushed higher — rewarding investors who stayed the course. In our latest investment outlook, we discuss how this volatility has affected the key pillars of our asset allocation framework and where we can find stability in this unstable world.

Market volatility – friend or foe?

2025 is staking a strong claim to be the most volatile year yet of the ‘turbulent twenties’. So far we have seen pretty much everything imaginable in the geopolitical sphere, with security and macroeconomic risks rising as a result.

Surveying the events around them, investors might well question how on earth asset markets have broadly risen across the world, rewarding those with a steady hand and those who are willing to treat volatility as a friend rather than a foe. Let’s review this supposed disconnection between rising risks and rising asset prices and evaluate whether this situation will persist.

The best place to start, as we reach the halfway stage of this year, is to review the original outlook that we set for 2025, based on the key investment themes (pillars) of our asset allocation framework.

In late 2024, our projections for the year ahead were:

1. We would see a year of moderate economic growth across the global economy
2. Inflation would continue on the lower path it has been tracking since the peak in price rises of 2022
3. Interest rates would be cut further in the UK, US and Europe
4. Corporate profits growth would lead to rising equity markets
5. Portfolios would make positive progress, as the macroeconomic backdrop would be supportive of bonds.

Interestingly, we would argue that despite everything that has happened, those central suggestions remain constant six months later.

Theme 1: the global economy

While the US economy previously seemed unshakable, there are now some signs of fatigue. Consumer and business confidence have been dented by the unpredictable nature of the Trump administration. However, now that the administration has passed its proposed ‘One Big Beautiful Bill Act’, a short-term economic boost may follow.

Although tariff-related uncertainties remain, markets have begun to absorb the shock of April’s ‘Liberation Day‘ and are now pricing in more sensible outcomes. In addition, the US government appears to be shifting from disruptive reforms to pro-growth strategies. While the journey ahead of us will be bumpy, we believe that markets, consumers, and businesses will gradually adapt to this new tariff and political environment.

Outside the US, the economies of the UK, Europe, and China are growing steadily, though not rapidly. To support this growth, China and Europe are increasing government spending on infrastructure and defence. Together, these trends suggest that a global recession remains unlikely, even though risks have risen.

Theme 2: Inflation pains

Inflation uncertainty has reasserted itself in both the UK and US. In Britain, the cost of our bills surged in ’awful April’, while American prices are being driven higher by new tariffs. These developments are painful for consumers, but we expect these pressures to ease later in the year, barring another commodity price shock driven by global events.

Theme 3:  Interest rates – cuts expected

Assuming inflation moderates as expected, we believe central banks in both the US and UK will cut rates twice before the end of the year. In the medium term, interest rates are expected to settle around 3–3.5%, a level that should be compatible with low growth and manageable debt service burdens. This would also provide support to housing markets and consumers without encouraging excessive risk-taking.

Theme 4: Government initiatives

Government debt is a clear and present danger in both the UK and US. Our chancellor, Rachel Reeves, and the secretary of the US treasury, Scott Bessent, are discovering the limits of policymaking under financial constraint. In the UK, we anticipate new tax measures in the autumn budget to help improve public finances. Ironically, policies intended to stabilise the economy may weigh more heavily on it, leading to further necessary tax rises, thereby fuelling concerns that the UK is falling into a debt trap.

In the US, the administration is combining growth-focused initiatives with efforts to improve government efficiency, a vitally important pursuit. The outcome of these potentially contradictory ideals will be critical to medium-term financial stability.

Theme 5: market valuations and investors positioning

Can portfolios defy negativity?

Certainly, the two most concerning influences of this year so far – the uncertainty around tariffs and the rising tensions across the Middle East – have destabilised the overall economic and investment environment, but our ‘base case’ forecasts have barely shifted since January. We still anticipate slow but positive global growth, with inflation trends softening by year-end. If this outlook proves sensible, it suggests that portfolios should continue to defy the bearish commentary from across the financial industry, with balanced contributions from both equities and bonds.

Could we be wrong? Of course, but recent economic indicators suitably reflect our ‘slow growth’ thesis.

Keeping a close eye on the markets

Given a wide range of possible scenarios, we have continued with a neutral stance across asset classes. This diversified approach feels prudent in a world of mounting unpredictability. Both equities and bonds are expected to deliver positive returns in the years ahead, but with continued volatility.

Within fixed income, we're now more comfortable holding longer-duration assets (with maturities of 10 years or more) than we have been in recent years, as interest rate cuts look increasingly likely. Our allocation continues to favour corporate bonds and selective credit opportunities, but we’ve shifted up in quality to reduce risk, while accepting slightly lower but more consistent returns. This seems sensible to us in an even more uncertain world.

Our equity portfolios maintain balance and retain flexibility. Volatility, while uncomfortable, often creates investment opportunities. The sharp downturn in April served as a timely reminder that market capitulation can be a springboard for disciplined investors. We remain tilted toward high-quality companies, which we believe offer both resilience and reasonable valuations. These firms should hold up well across a range of potential outcomes.

Diversified assets like commodities and inflation-linked securities (bonds) continue to play a valuable role in managing risk, especially given ongoing inflation concerns.

Holding steady in a shaky world

While the world feels increasingly unstable, our investment approach is grounded in pragmatism. We are cautiously optimistic, believing that our blend of offence and defence puts us in a strong position to help our clients meet their long-term goals, even as the world changes rapidly in front of us. As I look back on over 20 years of managing our model portfolios, the only two constants have been uncertainty and opportunity. This will continue to be the case.

Any questions?

If you have any questions about the current market and economic environment or your asset allocation within your portfolio, please get in touch with us.

For further information on any of the terms used in this article please see our glossary of investment terms.

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

The tax treatment of all investments depends upon individual circumstances and the levels and basis of taxation may change in the future. Investors should discuss their financial arrangements with their own tax adviser before investing.

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Discover our accompanying article to Investment Outlook July 2025.

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