In the first half of 2025, U.S. stocks experienced a rollercoaster ride. After a sharp drop in April triggered by Trump’s reciprocal tariff announcement, markets quickly rebounded and hit all-time highs by the end of June. However, some major money managers are beginning to raise concerns about where the market currently stands.

“If I’m honest, I’ve been a little uncomfortable with this rally,” said Kate Moore, the newly appointed Chief Investment Officer of Citigroup Inc.’s wealth division. “There are a number of warning flags that are not yet affecting investor sentiment—and I don’t understand why, frankly, they’re not on people’s near-term radars.”

1. Earnings Expectations Are Being Cut

The first warning sign is the consistent downgrade of corporate earnings forecasts. According to Bloomberg Intelligence data, at the start of this year, Wall Street analysts expected S&P 500 company profits to grow by nearly 13% year-on-year. That figure has now dropped to just 7.1%. With Q2 earnings season about to begin, current market expectations are for profit growth of just 2.8%—the lowest in two years.

FedEx, often viewed as a bellwether for the U.S. economy, has already issued a warning: ongoing damage from Trump’s trade war will weigh on its earnings this quarter, leading to results below expectations.

Meanwhile, valuations are stretched. The S&P 500's forward 12-month price-to-earnings ratio stands at 22x—well above its 10-year average of 18.6x. If earnings weaken further, this high valuation could become a major hurdle for new buyers.

2. Market Gains Are Narrow and Concentrated

The second red flag: stock market gains remain highly concentrated among a few tech giants, and even those leaders are diverging. While NVIDIA and Meta continue hitting new highs, Apple and Tesla have lagged behind. The equal-weighted S&P 500 index, which reflects the average stock's performance, has failed to make new highs—underscoring how narrow this rally really is.

3. Tariff Pause Nears Expiration

The third risk is the impending expiration of the 90-day pause on reciprocal tariffs. Few countries have reached deals with the U.S., raising the likelihood of tariffs snapping back. Investors may be underestimating the impact, despite globalization playing a key role in corporate profitability over the past two decades.

Trump has shown his hardline stance, using the threat of ending trade negotiations to force Canada to withdraw its digital services tax—demonstrating his willingness to escalate.

4. Geopolitical Flashpoints Remain Unresolved

Fourth, while a temporary ceasefire between Israel and Iran has eased tensions, Middle East instability remains unresolved. The future of Iran’s nuclear program is highly uncertain, and investors should not grow complacent.

Meanwhile, U.S.-China trade talks remain difficult. Core disagreements remain: American companies want access to China’s rare earth minerals, while Chinese tech firms seek access to U.S. advanced chip technologies.

5. The Fed’s Independence Is in Question

Lastly, concerns are growing about the Federal Reserve’s independence. Trump has repeatedly criticized Fed Chair Jerome Powell for being slow to cut rates and has even threatened to name his successor early—undermining Powell’s authority.

“There’s a risk that markets suddenly start to worry that the next chairman of the Fed is not as independent as they maybe have been in the past.”

Investors should remember: rate cuts are not only a reaction to cooling inflation—but often a response to slowing economic activity, which is rarely good news for risk assets.

“We are more cautious than constructive,” said Joe Gilbert, portfolio manager at Integrity Asset Management LLC. “The outlook for the second half of the year is always framed by the starting point—and that starting point, from the perspective of valuation and earnings growth, is not that attractive.”