ETFs to Capture Market Momentum in the Second Half of 2025

The first half of 2025 proved volatile for investors, marked by geopolitical tensions, tariff-related uncertainty, and other underlying risks. Despite the uncertainty, the S&P 500 managed a gain of approximately 5.7% in the first six months.

Sentiment shifted sharply in early April after President Trump paused reciprocal tariffs, sparking a bullish rally that sent the S&P 500 up approximately 25% by the end of the first half.Many economists expect the U.S. market bulls to continue with their momentum going into the second half of 2025.

Below, we take a look at sectors that are expected to continue with their momentum into the second half of the year.

Cryptocurrency

Investing in cryptocurrencies presents an alternative route for those picking funds as the greenback weakens. Bitcoin has gained 12% in the first half of the year and an impressive 41% since early April.

Cryptocurrency, an alternative to traditional currencies, tends to gain from a weaker greenback. The greenback is losing its strength and trading near multi-year lows, marking its worst first-half performance since the 1970s, with both technical and fundamental factors working against the currency.

According to TradingView, the U.S. Dollar Index (DXY) has fallen 2.54% over the past month and 11.28% over the past six months.

Investors have increased their bets on the pace of interest rate cuts by the Fed. If the Fed goes ahead with an interest rate cut, it could boost investor risk appetite, potentially leading to increased exposure to digital currencies. Additionally, lower interest rates would leave investors with more capital, often leading to increased interest in cryptocurrency.

Investors can consider funds like iShares Bitcoin Trust IBIT, Grayscale Bitcoin Trust GBTC and Bitwise Bitcoin ETF Trust BITB. Investors can also look at Grayscale Bitcoin Mini Trust BTC, which is a cheaper alternative to Grayscale Bitcoin Trust.

Performance-wise, BITB appears better, gaining 11.43% over the past month and 54.93% over the past year.

Artificial Intelligence and Technology

Increasing investments in the AI and Tech market created a dominant theme in 2024, and this momentum continues on Wall Street in 2025. This sustained momentum presents a compelling opportunity for investors, as ongoing initiatives and innovation continue to drive growth in the U.S. AI and technology market.

Experts expect the AI infrastructure trade to remain resilient, with global investors planning substantial investments in the U.S. AI market. According to Reuters, Masayoshi Son, the founder of SoftBank, is proposing a $1 trillion complex in Arizona focused on developing robotics and AI technologies.

This is in addition to President Trump’s announcement in late January regarding ‘Stargate,’ a $500 billion private-sector investment aimed at building AI infrastructure in the United States.

With the global AI market projected to surpass $1 trillion by 2031, the market is an attractive investment opportunity. According to Statista, the U.S. AI market is expected to witness a CAGR of 26.95% from 2025 to 2031, reaching a valuation of $309.7 billion by 2031, cementing its position as the largest AI market globally.

Investors can consider iShares U.S. Technology ETF IYW, Global X Artificial Intelligence & Technology ETF AIQ and Global X Robotics & Artificial Intelligence ETF BOTZ.

Performance-wise, IYW was better over the past month, gaining 10.62% and AIQ had better performance over the past year, adding 21.29%.

Gold

Investor sentiment remained fragile in the first half of 2025, providing strong tailwinds for gold. Rising geopolitical uncertainty and central banks increasing purchases of the precious metal, have contributed to gold’s sustained appeal.

Expectations by some economists that inflation may worsen before easing toward the Fed’s target have kept investor interest in the yellow metal elevated. Gold remains an attractive inflation hedge, as it preserves its purchasing power, outpacing inflation.

Gold prices are inversely related to the value of the U.S. dollar and the greenback’s struggles in 2025 has been a tailwind for the yellow metal. A weaker U.S. dollar generally leads to higher demand for gold, pushing its price upward as it becomes more affordable for buyers holding other currencies.

The yellow metal gains additional support from expectations of rate cuts by the Fed. The greenback's value tends to move inversely with interest rate adjustments by the Fed. Interest rate cuts by the Fed make the dollar less attractive to foreign investors as this weakens the U.S. dollar.

Investors can consider SPDR Gold Shares GLD, iShares Gold Trust IAU, SPDR Gold MiniShares Trust GLDM and Goldman Sachs Physical Gold ETF AAAU to increase their exposure to the yellow metal. The funds have gained about 15.5% over the past three months and 39% over the past year.

Aerospace and Defense

The only word that can be used to describe the geopolitical landscape in 2025 is 'complicated.' Increased defense spending by global economies has also boosted the sector’s prospects. According to the Stockholm International Peace Research Institute, global military spending rose to $2.72 trillion in 2024, marking a record 9.4% increase over 2023, the sharpest annual rise since the end of the Cold War.

Additionally, the shift in warfare technology has resulted in the militarization of space, with economies looking to expand the development of their own space-based arsenal, a trend already gaining momentum. Analysts believe this could unlock major opportunities for U.S. defense firms (Read: Space ETFs for a Portfolio That's Out of this World).

The S&P 500 Aerospace and Defense index has gained 47.86% over the past year and 24.13% year to date.

Investing in Aerospace and Defense ETFs allows investors to tap the sector’s ongoing momentum.  iShares U.S. Aerospace & Defense ETF ITA, Invesco Aerospace & Defense ETF PPA, SPDR S&P Aerospace & Defense ETF XAR and Global X Defense Tech ETF SHLD can be considered.

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This article originally published on Zacks Investment Research (zacks.com).

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