The Straits Times Index (SGX: ^STI) has been on a bullish run since President Donald Trump unleashed his Liberation Day tariff announcement.

The bellwether blue-chip index started the year at 3,800 and plunged to as low as 3,394 when the tariff announcement was made.

Since then, the index has been on a tear, leaping 18.4% to close at an all-time high of 4,019 on 3 July 2025.

It was also the first time that the index had breached the 4,000 level and closed above it.

Investors may be wondering – what’s next for the STI? Has it surged too high and too quickly?

How will the second half of 2025 (2H 2025) turn out, and can the index continue to scale new heights?

Buoying up the banks’ earnings

The three local banks make up a significant chunk of the index; thus, their fortunes will determine if the index can continue to power higher.

As of 30 June 2025, the three banks make up 51.2% of the STI.

DBS Group (SGX: D05), the largest of the three, occupies a 24.67% weight.

OCBC Ltd (SGX: O39) comes next with 14.45% and United Overseas Bank (SGX: U11), or UOB, takes up 12.12%.

It’s a well-known fact that banks are interest-rate sensitive and are also greatly affected by the macroeconomic environment.

As of this writing, the US reported that its economy added 147,000 jobs in June, topping estimates and reassuring investors that the economy is still doing fine.

The unemployment rate dipped to 4.1% from 4.2%, in a sign that the labour market stayed robust despite the wave of tariffs unleashed by the White House.

There were worries that high interest rates may crimp consumer spending and cause companies to hold back from investments.

With the labour market chugging along fine, there is less of a chance that the US Federal Reserve will be keen to cut interest rates.

Another factor to consider is that Trump’s tariffs may reignite inflation as these higher costs pass through supply chains.

Companies may raise the prices of their goods and services to offset the negative impact of these tariffs, causing inflation to rise once again.

Before the labour report came out, the US central bank was pencilling in two rate cuts for 2H 2025.

Depending on incoming economic data, these rate cuts may or may not take place.

The three banks should see their net interest margins remain high should interest rates stay at current levels, thus buoying their net interest income.

Don’t forget that these lenders are also seeing healthy fund inflows and brisk credit card spending.

As a result, their fee income is likely to be maintained or even grow.

The bottom line is that DBS, OCBC and UOB should continue to enjoy strong financial results this year, barring an unexpected recession or a sharp reduction in interest rates.

The transformation bunch

Apart from the banks, there are also several blue-chip stocks that announced strategic reviews to transform their business.

These reviews can help to unlock value for shareholders and push the share prices of these companies higher.

Keppel Ltd (SGX: BN4) is one such company that has transformed from a conglomerate with an order-book-based offshore and marine business to a leaner asset manager. It occupies 2.84% of the STI.

The group released its Vision 2030 strategic initiatives and is focused on capital recycling and building up its funds under management to achieve an asset-light structure with more recurring earnings.

Net profit for the first quarter of 2025 (1Q 2025) rose 25% year on year, excluding its legacy division, with 80% of this profit being recurring.

Keppel recently released its Investor Day slides, where it listed its targets for asset monetisation and the growth of its funds under management.

Its shares have hit a 52-week high of S$7.72 and are up more than 10% year-to-date, and could have more room to run if the business continues to do well.

Another company transforming is Singtel (SGX: Z74), which makes up close to 7.5% of the index.

The telco reported higher underlying net profit that rose 9% year on year for its latest fiscal year, and its total dividend of S$0.17 was also higher than the previous fiscal year’s S$0.15.

Singtel’s strategic reset started in 2021 and has continued with its ST28 long-term strategy.

Management has raised its pipeline target for asset recycling to S$9 billion in the medium term, which could be a further driver of earnings and dividends.

Singtel’s share price has also done well this year, up 25% year-to-date after hitting a 52-week high of S$4.

And then some companies release long-term growth plans, such as Singapore Technologies Engineering (SGX: S63), or ST Engineering, which occupies a 3.2% position in the STI.

The best blue-chip performer this year saw its share price breach S$8 and is up close to 70% year-to-date.

There could be more to come from the engineering and technology giant.

For its Investor Day 2025, ST Engineering listed out its targets for growing revenue and earnings up to 2029 and also demonstrated its commitment to growing its dividend progressively.

Get Smart: The momentum may continue

The bullish momentum may still have legs.

The three banks look set to benefit from “higher for longer” interest rates, which will ensure their profits stay close to 2024’s record levels.

Keppel, Singtel and ST Engineering also have solid catalysts that can help to take their business to the next level.

These companies alone should help to power the STI higher, should they continue to post higher profits, and investors can hope to see new records being broken.

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Disclosure: Royston Yang owns shares of DBS Group.