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Key Takeaways, Second Quarter 2025

Markets fell in April following President Trump's tariff announcements. Subsequently, deferred implementation and a potential easing of tariff rates drove a rebound in both US and international stock markets during the final two months of the quarter. Despite continued policy uncertainty and geopolitical tensions, the S&P 500 and Nasdaq reached all-time highs.

Economic uncertainty remains elevated. Signs of economic deceleration and weakening consumer confidence hurt investor sentiment. The stock market rotated back to growth over value. A weaker dollar helped international stocks.

The Fed continued to take a “wait-and-see” stance. It cited low unemployment, a strong labor market, economic expansion. It remains committed to its 2% inflation target. Treasury rates fell and spreads narrowed modestly. Bonds of all types gained.

Investors are focused on tariffs and other sources of policy uncertainty, especially those related to geopolitical tensions, and their implications for inflation and economic growth.

Equities

After falling in April, stocks rose in the May and June. The broad US market was up 11% in Q2. Small caps lagged, gaining 8.5%. Growth outperformed value (17.8% vs 3.8%).
Due to a falling dollar, International stocks outpaced US by 1%. Developed International stocks gained 11.8% (5.3% hedged), and Emerging Market gained 12% (8% hedged).
After falling 15% in Q1, the Magnificent 7 (cap wt) gained 20% in Q2, and are up 2.6% YTD.

Fixed Income

Despite positive developments on inflation, the uncertainty due to higher tariffs, tax cuts and other sources kept the Fed on hold.
Interest rates fell. The yield of the 10-year Treasury started the quarter at 4.21%, fell to 4% after the first round of tariff announcements, then climbed to 4.60%, before finishing the quarter up 2 bps at 4.23%.
Credit spreads narrowed. Core bonds gained 1.2% in Q2, Investment Grade gained 1.82%, and High Yield gained 3.53%.