“The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.”
Motivational writer William Arthur Ward
When economists talk about the economy, they will often refer to tailwinds and headwinds that may be on the horizon. Tailwinds are those trends that can support economic growth, while headwinds can hamper expectations.
When we talk about the economy, we tend to adjust our sails as new long-term trends emerge.
As we enter the second half of the year, we are anticipating that some tailwinds will help economic growth. At the same time, we’re on the lookout for a few headwinds that may gather momentum as 2025 progresses. Here’s a short summary of what we see in the months ahead:
Potential Tailwinds |
|---|
Artificial Intelligence |
Corporate Profits |
Fed Action |
Tariffs |
Artificial Intelligence: In Q4 2024, 241 companies in the Standard & Poor’s 500 cited the term “AI” in conference calls with shareholders. That was the highest level ever. And it wasn’t just tech companies talking about AI. It was mentioned by companies in the health care, financial, and energy sectors.1
Corporate profits: There’s a famous Wall Street saying that suggests stock prices are driven by two factors: “corporate profits and what investors are willing to pay for those profits.” For 2025, Wall Street analysts are forecasting profit growth of 11.3% with sales increasing by 5.4%. But remember, forecasts are based on assumptions and are subject to revisions at any time. FactSet updates its numbers on a weekly basis, so it’s possible they may change over time. Also, financial, economic, political, and regulatory issues may cause the actual results to differ from the expectations expressed in the forecast. 2
Fed Action: We list Fed action as both a tailwind and a headwind. The Fed’s Open Market Committee (FOMC) holds eight regularly scheduled meetings per year and updates investors on its outlook for interest rates following each meeting. It’s possible the Fed may adjust interest rates in the second half of 2025, but as Fed Chair Jerome Powell reminds investors the FOMC is always monitoring economic conditions before it gives insights about every six weeks.
Tariffs: These are another economic factor that could emerge as a tailwind or a headwind in the second half. The fast-moving tariff situation could look much different in three months.
“Trust in the Lord with all your heart and lean not on your own understanding; in all your ways submit to Him, and He will make your paths straight.” Proverbs 3:5-6
Potential Headwinds |
|---|
Geopolitical Tensions |
Fed Actions |
Tariffs |
Geopolitical Tensions: Some of the world’s most prominent hotspots can see escalations at any time, but for investors, it’s often the unexpected event that can be the most difficult to manage. For example, in August 2024, global financial markets were caught off guard when Japan’s Nikkei dropped quickly as investors cashed out of a popular trading strategy called a “carry trade.”3
Fed Actions: Fed Chair Powell can move from villain to GOAT (greatest of all time) in the matter of a few weeks. If Powell sounds “dovish,” investors often see that as a sign that interest rates may trend lower. On the other hand, if he’s considered “hawkish,” that can send a different message about rates.
Tariffs: When a country imposes tariffs, companies that import the goods are usually responsible for paying the tariff. Fun fact: Did you know that more than 170 economies impose some form of tariffs?4
These are just a few of the many headwinds and tailwinds we are monitoring in the second half. Let us know if you think any other trend may play an important role.
- Research.FactSet.com, March 14, 2025
- Research.FactSet.com, April 4, 2025
- CNBC.com, August 13, 2024
- WTO.org, 2025
