AI, longevity among key market drivers in second half of 2025

The mid-year mark offers investors a valuable opportunity to reflect on recent market trends and recalibrate their views.

- Tan Min Lan

In 2025, they find themselves caught between fears that resulted in elevated volatility and drivers that point to opportunities.

In the first half, mounting US debt concerns and shifting trade policies had led to a reassessment of US exceptionalism, the dollar's role in portfolios, and the safety of Treasuries. During the height of investor fears, the S&P 500 fell nearly 13 per cent in four trading days, and the 30-year US Treasury yields briefly surged past 5 per cent. The US dollar has depreciated more than 10 per cent so far in 2025.

A TRIFECTA OF CONCERNS: DEBT, DOLLAR, U.S. EXCEPTIONALISM

The US fiscal situation does not look pretty, with the One Big Beautiful Bill Act (OBBBA) expected to keep deficits above 6 per cent of US gross domestic product (GDP) in the coming years. But while the rising deficit keeps bond market volatility elevated, a sustained bond market sell-off remains unlikely. US nominal growth still exceeds average interest costs, and the Fed retains credible tools—quantitative easing, capital rules, and if necessary, yield curve control—to absorb excess Treasury supply.

Investors are also fretting about the shift away from US dollar reliance in trade, finance and reserves, or "de-dollarisation", with global central banks' accumulation of gold supporting the bullion's surge to fresh records.

But while de-dollarisation is a real and gradual trend—global FX reserves in dollar have fallen from 70 per cent in 2000 to 58 per cent today, and central banks have been net gold buyers since 2008—the dollar value has risen, not fallen, over the past 15 years. Growth and yields differentials have mattered more.