Janus Henderson released its Market GPS Investment Outlook, Mid-Year 2025.
EQUITIES
Proactive Positioning: Maximizing Volatility-Induced Entry Points
Periods of economic transition have historically widened dispersion of stock returns, and 2025 has been no exception. Though the year began with economic optimism, uncertainty around tariffs and their impact on inflation and growth has heightened volatility across sectors. For active investors, this volatility and broadening leadership creates opportunities to strategically reposition into high-quality companies temporarily discounted by macro uncertainty. Whether it be tariffs, taxes, deregulation, or other unexpected developments, policy has been unpredictable and market moving. In the first half of 2025, temporary peak-to-trough drawdowns of 24% and 19% for the NASDAQ Composite and S&P 500, respectively, proved to be valuable buying opportunities for investors that were underweight the highest-quality companies within these indices. With policy likely remaining unpredictable, volatility should continue to create entry points for investors taking a selective approach, both in the U.S. and also more widely.
Global Mindset: Accessing Opportunities Outside of the U.S.
Since 1980, U.S. and non-U.S. stocks have consistently taken turns leading the global equity market, with U.S. equities most recently on top, outperforming for the last 14 years. It’s a run that smashed the long-term average (eight years) and contributed to stretched valuations in the U.S. Now, as the Trump administration injects volatility into markets, U.S. stocks are getting a stress test. The S&P 500 Index has generally been under more pressure so far in 2025, while non-U.S. developed markets broadly fared better. Could this trend signal a flip in the global equity cycle? While U.S. markets should continue to benefit from secular themes such as artificial intelligence (AI) and medical innovation, reforms taking place in other economies could lead to new, dominant growth drivers outside the U.S.
Small But Strong: Tapping into Compelling Long-Term Growth Potential
Investing in small- and mid-cap stocks offers potentially higher returns but also brings risks. This has been on display through this year’s tariff tantrum. The generally cyclical nature of smaller companies, as well as their heightened sensitivity to tariffs, were key drivers of the sell-off. On a positive note, the sell-off presented the opportunity for investors moving into small and midcaps to be well rewarded by gaining early exposure to the highest-quality segments of this universe at historic discounts. As short-term volatility gives way to medium-term resolution, the same cyclicality and tariff sensitivity that pressured the sector this year have the potential to become meaningful upside catalysts.
FIXED INCOME
Diversification In Action: Consistency of a Multi-Sector Approach
To date in 2025, corporate spread activity has been extreme, with U.S. investment-grade corporates starting the year at their tightest valuations since the 1990s, widening from 80 basis points (bps) to 119 bps by early April and tightening back to 88 bps by the end of May. These rapid spread fluctuations, coupled with elevated rate volatility, highlight the challenges in identifying the most advantageous fixed income sectors within a single year, let alone year after year. We believe a multi-sector approach underpinned by nimble, active, and broad-based fixed income management is critical to successfully navigating volatile and unpredictable markets over the long term.
Seeking Resilience: Defensive Potential of High-Quality Securitized Debt
For investors who are new to securitized fixed income, recent volatility may have provided the first opportunity to witness how securitized sectors might respond when equity markets pull back. Tariff-induced volatility in April precipitated a swift equity sell-off that saw the S&P 500 fall nearly 19% from its February high. Most investment-grade securitized sectors were slightly positive to flat over the same period, underscoring their defensive potential. U.S. securitized debt has, on average, performed better than corporate bonds through the five most recent corrections and bear markets. Within U.S. fixed income, only Treasuries have outperformed securitized sectors through such periods going back to 2015.
ALTERNATIVES
Private Credit: Portfolio Allocation Benefits
Interest in private credit has grown significantly over the past decade. The global private credit market now exceeds US$2 trillion in assets under management, with some suggesting the addressable market size could be more than US$40 trillion. This growth has come primarily in the direct lending space as traditional banks pulled back from certain lending activities, creating a vacuum that private credit has stepped in to fill. Meanwhile, a growing group of investors has led to a larger pool of capital for private credit strategies to deploy. While direct lending has driven most of the growth, a recent slowdown in private equity deals and a higher rate environment have led to capital being deployed elsewhere in search of diversification. Asset-backed lending is one segment that has seen greater interest. ABL’s defining features are its reliance on tangible or financial assets as collateral, which translates to limited loss potential and an ability to offer cash flows, regardless of broad market conditions.
Equities Outlook: Era of Rapid Change Creates Opportunities
Head of EMEA and Asia Pacific Equities Lucas Klein and Head of Americas Equities Marc Pinto argue that progress on the trade impasse, further monetary easing, pro-growth reforms and an innovation revolution should all prove supportive to equities over the mid-term once the market moves past near-term volatility.
Key takeaways:
- While additional near-term volatility should be expected, over a longer horizon, we believe the combination of pro-growth policies, monetary easing, and accelerating innovation should power global equities earnings growth.
- International stocks could receive a boost from pro-growth reforms in Europe and Japan along with consumption-focused stimulus in China, while global small-caps stand to benefit from rate cuts and an extension of the economic cycle.
- The economic benefits from a wave of innovation – including artificial intelligence and advancements in healthcare – should begin to spread across industries and geographies, providing investors the opportunity to seek out those companies that can most effectively harness new technologies to boost productivity and grow earnings.
Fixed Income Outlook: A Not-So-Random Walk
Alex Veroude, Global Head of Fixed Income, believes fixed income investors can prepare for an uncertain journey by recognising trends and diversifying across different assets.
Key takeaways:
- An unpredictable White House has widened the range of outcomes for economies around the globe, but recent moves in rates markets speak to longer-term global trends.
- Corporate bond spreads are tight and, in our view, are vulnerable to widening. However, yields remain elevated relative to history, which should appeal to investors seeking income.
- Investors can prepare for an uncertain journey by having a well-stocked kit bag; securitised assets can offer additional or alternate means to achieve returns and diversify risk.
Macro Drivers: Positioning for 2025’s Geopolitical Realignment
CEO Ali Dibadj provides an update on the three macro drivers we believe will shape markets in the second half of 2025 and how Janus Henderson is helping clients position for a brighter investment future.
Key takeaways:
- Geopolitical realignment: As tariffs have shaken markets and made it clear that geopolitical risk must be factored into investment decisions, new developments must be actively monitored, and a thorough testing of previously unlikely scenarios is now obligatory.
- Return of the cost of capital: The higher yields available in fixed income provide attractive entry points, and our conversations with clients, as well as industry flow numbers, show that meaningful allocations are being made.
- Demographics and lifestyle shifts: This driver has evolved to encompass how people and countries are harnessing innovation and technology to improve lives and productivity. The next major wave of AI and developments in healthcare present exciting opportunities in the years ahead.
