Q2 2025 Market Recap: Headlines, Highs & Holding On

What a ride! The second quarter of 2025 threw a little bit of everything at investors—trade tariffs, geopolitical drama, policy curveballs—you name it. However, it demonstrated the market's ability to recover from significant challenges while reaching new record levels. Despite facing tariff announcements, geopolitical tensions in the Middle East, and policy uncertainty, equity markets delivered one of their most impressive rebounds in recent memory. This quarter serves as a valuable reminder for long-term investors that while headlines may create short-term turbulence, maintaining a disciplined approach and focusing on underlying economic fundamentals continues to be essential for achieving investment objectives.

Market performance broadened across asset classes

Equity markets experienced widespread gains during the quarter, with the S&P 500 advancing 10.6% and the Nasdaq surging 17.7% to new highs. International markets also participated in the rally, with developed markets gaining 10.6% and emerging markets rising 11.0%. The recovery was notably broad-based, encompassing multiple sectors including Technology, Industrials, and Communications.

Fixed income markets also contributed positively to portfolio returns, with the Bloomberg U.S. Aggregate Bond Index gaining 1.2%. Treasury yields fluctuated throughout the quarter but settled at reasonable levels, while credit spreads tightened, supporting corporate bond performance.

Currency movements reflected changing economic dynamics

The U.S. Dollar Index continued its decline throughout the quarter, falling to 96.88 from its year-beginning level of 108.49. This currency weakness, while creating some challenges for consumers, provided benefits for U.S. exporters and multinational corporations by making American goods more competitive globally.

Federal Reserve policy remained steady with rates held at 4.25% to 4.5%. Officials updated their economic projections, expecting inflation to reach 3% in 2025 before moderating, while GDP growth forecasts were revised lower to 1.4% for the year.

Fixed income provided portfolio stability

Bond markets played their traditional role as portfolio stabilizers during periods of equity market stress. High-yield, corporate, and Treasury securities all delivered positive returns, demonstrating the value of diversification during volatile periods.

Fiscal policy discussions continued in Washington, with the national debt exceeding $36 trillion. While Moody's downgraded the U.S. credit rating, citing fiscal concerns, historical precedent suggests that such challenges are typically resolved through political processes, allowing markets to focus on underlying economic fundamentals.

May you and your family have a wonderful and safe 4th of July!