Second Quarter Recap

It is difficult to imagine a greater range of emotions than what investors experienced over the prior three-month period. In early April, the S&P 500 was down over 20% from its February all-time high amid an escalating trade war that threatened to upend the global economy. Prices of risky assets were crashing along with investor and consumer sentiment. The overwhelming consensus was that it would only get worse before it got better. Thankfully, cooler heads soon prevailed and progress was made on the trade front to avoid the worst-case scenarios that many feared. As trade agreements were announced and inflation data suggested price increases were not accelerating to alarming levels, investors felt increasingly better about assuming more risk and buying stocks once again. This renewed surge in optimism propelled the S&P 500 back up to all-time highs before the quarter even finished to complete an incredible recovery. Exposure to foreign equity markets also continues to provide a boost to returns. The gap between international and U.S. equites narrowed during the second quarter, yet foreign stocks, as a group, have outperformed the U.S. stock market through June.

The bond market was mixed during the second quarter, continuing a trend that goes back to around September of last year. Interest rates, which move inversely to bond prices, have largely gone sideways for much of the past two years. The benchmark 10-Year U.S. Treasury yield finished June at 4.23%, almost right in the middle of the range between 3.60% to 4.80% that it has remained in since late 2023.

It was a whirlwind quarter full of extreme emotions and price swings. The escalating trade and geopolitical tensions resulted in very real risks that have still not completely gone away. However, the stock market, in particular, made it clear that it was looking past these risks and toward a brighter future. The economic and inflation data will remain under close scrutiny from investors, and it is unlikely stocks will continue to go straight up without occasional pullbacks, yet the forward-looking stock market appears to enter the second half of the 2025 with newfound optimism.