Market Outlook: Best ETFs for the Second Half of 2025

Will the second half of 2025 continue the volatile upward march that marked the first half, or will it expose a tale of two halves, where we see slow growth led by eroding consumer confidence and tariff-driven price pressures that pull markets lower?

As we move into the second half, it’s worth reviewing a remarkable first half: one marked by wild swings, record-breaking runs and shifting investor sentiment.  

Precious metals ETFs like the SPDR Gold Shares (GLD) climbed more than 25%, while Europe’s defense-focused funds, led by the Select STOXX Europe Aerospace & Defense ETF (EUAD), surged nearly 75% amid a combination of economic and geopolitical uncertainty.

Meanwhile, the broader U.S. market eked out a modest 5% gain, yet still finished at a record high, completing one of the fastest recoveries ever after dropping nearly 20% amid trade-war fears.

The key question now: Can the second half continue the volatile but positive first half or will it tell a different story?

H1 2025 Recap: What Worked and Why

Safe havens like precious metals worked well in the first half as geopolitical conflicts in Eastern Europe and the Middle East ramped up while fixed income and international equities proved to be smart diversification tools and U.S. equity alternatives, respectively.

Precious Metals Soared

• GLD: Rose more than 25%, hitting record price highs on inflation and global unrest
• iShares Silver Trust ETF (SLV) and abrdn Physical Platinum Shares ETF (PPLT): Climbed to multi-year highs with price gains topping 25% and 50%, respectively, as safe-haven demand and industrial interest converged
• VanEck Gold Miners ETF (GDX): Experienced amplified gains of more than 70%, trading sharply ahead of metal prices

Bond ETFs Held Their Ground

• iShares Core U.S. Aggregate Bond ETF (AGG): Core bond ETFS delivered steady income, slight price appreciation (above 3%) and acted as shock absorbers during volatile periods.
• iShares 0-3 Month Treasury Bond ETF (SGOV): Ultra-short-term Treasury ETFs combined 4%-plus yields with near-zero duration risk, ideal in a rising-rate, inflation-frightened environment.

International Equity Funds Gained Traction

• EUAD: Benefited from improved valuations, robust corporate earnings and defense-sector tailwinds.
• iShares MSCI Emerging Markets ETF (EEM): Attracted attention for relative growth and trade diversification away from the U.S.

If H1 conditions, particularly geopolitical tensions, inflation worries and policy uncertainty, persist, these sectors could continue their momentum. But that strategy is not without risk if economic realities shift.

Best ETFs for H2 Outlook: Signals from Data and Policy

Recent PCE data showed slightly elevated prices alongside weaker retail activity, and President Donald Trump ended trade talks with Canada, a textbook recipe for stagflation. Against that backdrop, U.S. equities may struggle to sustain new highs.

What Could Perform

• Ultra-short Treasurys: With low duration and solid yields, ETFs like SGOV and the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) remain viable defensive plays.
• European equities: If global trade normalizes, Europe’s undervaluation and structural sectors could shine. EUAD or a broader Europe ETF like Vanguard FTSE Europe ETF (VGK) may prove valuable.
• Consumer staples: ETFs like the Consumer Staples Select Sector SPDR Fund ETF (XLP) may provide resilience in slowing growth without recession, as consumers continue to spend at a moderate pace but cut back on luxury (discretionary) items.
• Long-term Treasurys: ETFs like the iShares 20+ Year Treasury Bond ETF (TLT) would benefit if inflation reverses and the Fed delivers rate cuts faster than expected.

In other words, balance will be key: A mix of income, defense and strategic equity exposure could pay off as macro dynamics unfold.

Strategy for 2H: Building a Resilient Portfolio

Here’s a summary on ETF strategies that can work well in the second half of 2025:

• Diversification & DCA: Maintaining a diversified ETF lineup across equities, bonds and commodities remains the most consistent way to weather market shifts. Dollar-cost averaging helps reduce timing risk in choppy periods.
• Volatility ETFs: The Simplify Volatility Premium ETF (SVOL) or the ProShares VIX Short-Term Futures ETF (VIXY) can offer short-term profit opportunities amid sudden spikes, but they are not for beginning investors and are not long-term solutions.
• Stay grounded, not greedy or fearful: Market timing rarely outperforms disciplined investing. Focus instead on aligning exposures with your risk tolerance, timeline and income needs.

Final Takeaways for 2H 2025 Market Outlook

For the second half of 2025, a hybrid approach makes sense:

• Retain exposure to precious metals and international equities that have momentum.
• Keep bond allocations diversified across ultra-short, core and long-duration ETFs to adapt to shifting rate and growth scenarios.
• Avoid over-concentration in any one sector or strategy.

Ultimately, success in 2H won’t be defined by calling the next big breakout but by staying diversified, disciplined and hedged in the face of ongoing economic and geopolitical uncertainty. 

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing in ETFs involves risks, and investors should carefully consider their investment objectives and risk tolerance before making any investment decisions.

At the time of publication, Kent Thune held a position in SGOV.