We’ve just wrapped up the second quarter of 2025 and it seems hard to believe that the year is already halfway over. How did that happen so quickly? Although it flew by from my point of view, there wasn’t a dull moment, and it was packed with plenty of headlines!
In contrast to the first three months of the year, the second quarter was marked by resilience in U.S. markets, cautious optimism overseas, and developments on the policy and geopolitical fronts. The chart below shows the performance of key indexes for the quarter and year to date.
As you can see from the chart, equities persevered through all of the headlines this quarter, with the S&P 500 and Nasdaq Composite reaching new record highs, driven by strong technology earnings and optimism about easing monetary policy. Broader gains extended to small caps and international stocks, helping boost diversification benefits. However, pockets of volatility emerged around renewed tariff talks and rising Middle East tensions.
Tariffs returned to center stage during the quarter as the U.S. finalized a major trade deal with China, locking in U.S. tariffs on Chinese imports at 30% and reciprocal Chinese tariffs at 10%. Further actions are expected with additional U.S. trading partners. Although these measures initially raised concerns around higher input costs and supply-chain disruptions, investor sentiment improved late in the quarter as hopes for broader tariff agreements grew.
Another topic that continues to be in focus is interest rates and inflation. At its June meeting, the Federal Reserve held steady on interest rates, communicating a data-dependent approach and projecting two rate cuts by year-end if inflation continues to cool. The most recent inflation data, as indicated by personal consumption expenditures, showed annual core inflation at 2.7%. The US 10-Year Treasury Yield ended the quarter near 4.3%. Fed members conveyed that while tariffs may affect prices, persistent service-sector inflation remains a central concern. Lower Treasury yields and growing rate-cut expectations fueled equity gains, particularly in rate-sensitive sectors.
I would be remiss to summarize the second quarter without mentioning the ongoing global conflicts. The geopolitical environment was rattled when the U.S. launched targeted strikes against Iranian nuclear facilities, responding to accelerating regional conflict. While oil prices initially spiked, markets stabilized as Iran signaled a willingness to negotiate, alleviating fears of a larger-scale war. Nevertheless, global investors remain attuned to any escalation as fallout could impact energy supplies and risk assets globally.
While recent gains are encouraging, we are only halfway through the year and there is plenty of time for new headlines before 2025 comes to an end—from evolving tariff schedules and Fed policy to renewed Mideast tensions. Our portfolio strategy will continue to emphasize disciplined diversification and risk management tailored to your unique situation.
Thank you for your continued trust and partnership. We hope you and your loved ones have a happy and healthy summer.