After roller coasters rode for stock and bonds in the first half of 2025, opportunities remain on the corner of the market that remained. in Morning Star Investment Conference Chicago is the Chief Multi-Asset Strategist of Morningstar Investment Management Dominique Paparard and Chief Investment Officer Philip Strahl We shared a place where we could see perspectives and opportunities in the market.
In the stock market, Pappalardo and Straehl see value in international stocks, small caps, global consumer discretionary stocks, and healthcare names. Fixed-income markets recommend a large overweight position in the US Treasury and a slight overweight position in emerging markets.
Market and economic background
“There was a dramatic selloff in April, followed by eight or nine trading days, but it was really uneven in different sectors,” Paparard said. “That was followed by violent rebounds on US stocks. Many of these sectors were even higher than before the April 2nd selloff.”
In particular, the international market was superior to the US in the first half of 2025, with regions such as Germany and Latin America growing by nearly 30%, while the US market is up just 4%. “The trend in the US market has been significantly outperforming the glove this year after several years of driving,” Paparard said.
Despite the volatility, Paparaldo noted that the economic data is very stable. “Factors like GDP, unemployment and even inflation have been very stable throughout the first six months of the year,” he said.
Where to invest in stocks
Straehl pointed out four major opportunities for stock investors in the half mark of 2025. Consumer discretionary stocks, medical stocks, international stocks, and small caps.
The main factor in these opportunities is assessment. The consumer discretion sector will estimate fair value, the healthcare sector trades at a 13% discount, and small CAPS transactions at a 20% discount.
Straehl focused on consumer stocks in particular, noting that three main reasons are underestimated. The first is cost inflation. “There are food companies and beverage companies, and they’ve been greatly affected by an increase in the cost of goods (eggs, coffee, etc.). A lot of things are rising above average inflation. These companies have to find a more profitable way to do this, but they believe their expectations for these stocks are dynamic.”
Another reason is that China’s growth is slowing, and “it’s a shame after the post-pandemic,” Straehl said. “We’ve seen some better trends given some of the stimulus announcements. But overall, China’s consumer growth rate has slowed significantly compared to pre-pandemic levels.”
The third reason is the tariff rate. “Many consumer companies have complex supply chains and require products to be sourced in many different jurisdictions,” says Straehl. “And the uncertainty we’ve seen in recent weeks certainly isn’t over, but it’s getting heavy on the pricing of some consumer stocks.”
Over the next decade, Straehl is offering international stocks to Outperform, hoping for negative changes in the valuation of US companies and further depreciation in the US dollar. “We believe that US stocks have a decent return of about 6% on a nominal basis, but we believe that international stocks and emerging market share prices will yield higher returns.” He forecasts an 8% return for developed market shares and an 11% return for emerging market shares.
Where to invest in bonds
Pappalardo explained that the bond is at a point where there is some value just by having it in the portfolio. “If volatility spikes again, its value could arise from negative side protection. Or if there is a Treasury yield in the 4% range in the US, it could be generated from revenue bonds, and in some cases the international yield would be even higher,” he said.
He said unlike recent history, investors can get more than 4% in the US Treasury Department and even higher rates on emerging market debt that makes bonds attractive. “In the case of bonds, the opportunity lies in the fact that there is a high yield across the current range,” he said. “We don’t particularly like any segment. There are things I think are highly valued, but no one like stocks has a really strong buying opinion.”
Pappalardo sees some value in emerging market debt, which is traded at a fair value estimate and a 10%-15% discount. He recommended that he remain in a slightly overweight position in this segment.
The largest overweight position he recommended was the US Treasury Department. “Our recommendation is to have high quality fixed income insurance, as pricing doesn’t match to assume additional credit risk at this point,” Pappalardo said. He recommended that investors be located in the middle of the yield curve in the 5-10-year maturation range.
There is one segment where Pappalardo doesn’t see value. “Corporate credit is currently trading at very expensive valuations compared to credit spreads, which are the additional yields that earn us beyond Treasury debt to undertake credit risk. These ratios are around 50%-60% of what we think is fair value.”
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