2nd QUARTER MARKET RECAP
Despite a rocky start to the quarter, marked by renewed tariffs and escalating geopolitical risks, global markets delivered strong performance in Q2. A sharp selloff in early April gave way to a steady rebound in sentiment, and even June’s brief volatility following Israel’s strikes on Iran was short lived. By quarter end, most major equity indices had recovered and pushed back toward their highs.
Equities led the way in Q2, with nearly all major asset classes posting gains. The S&P 500 rose 10.5 percent, while small-cap stocks (Russell 2000) added more than 8 percent.1 International markets performed even better. Developed-market equities (MSCI ACWI ex US IMI) gained 12 percent for the quarter and 18 percent year to date, while emerging markets (MSCI Emerging Markets) also advanced 12 percent1, driven by a declining US dollar, attractive valuations and renewed investor interest.3
Strong first quarter corporate earnings added support. The S&P 500 delivered average earnings growth of 13 percent, well ahead of expectations.4 While companies acknowledged uncertainty surrounding trade and tariffs, most projected a “business as usual” outlook. A notable theme across earnings calls was continued investment in AI to enhance efficiency and protect margins, reinforcing the idea that AI-related capital expenditures are part of a durable long-term trend.4
Fixed income returns were also positive across both investment-grade and high-yield sectors.4 Gold prices extended their upward momentum in Q2, rising 6 percent for the quarter and nearly 26 percent year-to-date6, as investors remained cautious amid persistent geopolitical uncertainty and continued central bank buying.7
On the macro front, fundamentals remained constructive. The S&P Global U.S. Purchasing Managers Index (PMI) came in at 52.8 in June, firmly in growth territory, while inflation continued to moderate. U.S. CPI eased to 2.4 percent in May, still above the Fed’s 2 percent target but trending in the right direction.5 With growth holding steady and inflation still elevated, the Federal Reserve held interest rates unchanged in Q2, signaling a pause in cuts until clearer data emerges.4
Once again, markets defied the narrative of fear. Despite trade tensions, ongoing conflict in Ukraine, and instability in the Middle East, diversified investors who stayed the course were rewarded. The quarter served as another reminder that reacting emotionally to headlines often leads to missed opportunities, while discipline, diversification, and patience remain the most reliable drivers of long-term success.
Lesson From the Second Quarter
Challenging markets often teach us more than calm ones. Periods of volatility and uncertainty test both our instincts and our strategies. Yet these environments also offer valuable opportunities to strengthen discipline and build confidence in the investment process. The past few months were a good reminder of this. I’d encourage you to keep two key takeaways in mind:
1) Diversification and patience are your greatest allies. Despite ongoing headlines and uncertainty, disciplined investors were rewarded. Well-diversified portfolios captured gains across various regions, sectors, and asset classes, helping to reduce overall volatility. Meanwhile, market timers and prognosticators were once again proven wrong, likely missing the rebound while waiting on the sidelines.
2) Tune out the noise. Focus on what you can control. Easier said than done, of course. The reality is we can’t predict geopolitical events or a politician’s ever-changing stance on tariffs, let alone forecast how the market will respond to these variables. However, we can control our response by maintaining a long-term perspective and employing strategies such as tax-loss harvesting, tactical rebalancing, and opportunistically purchasing assets at more attractive valuations.
The Second Half of 2025
As we look ahead, I believe several key themes will shape the market’s behavior in the second half of the year. I’ll be closely watching the trajectory of additional tariffs out of the White House, interest rate cut expectations from the Federal Reserve, and the direction of hard economic data, including inflation, employment, and consumer spending trends. The U.S. dollar remains an open question, and its ability to stabilize or weaken further will likely influence global asset flows and investor sentiment.
At the time of writing, futures markets are pricing in a 64% probability of a quarter point Fed rate cut in September,8 though that outlook could shift quickly depending on incoming inflation and labor data. The Fed continues to signal patience, prioritizing evidence of sustained disinflation before making further policy moves.
Meanwhile, the S&P 500 remains highly concentrated, with the “Magnificent Seven” stocks continuing to drive a disproportionate share of market returns. While these companies have strong fundamentals, valuations remain elevated, and concentration risk is real. Second quarter earnings will offer important insights, particularly how corporate management teams are thinking about ongoing tariff uncertainty and its potential impact on forward guidance, capital investment and hiring.
In this environment, I continue to emphasize diversification and quality, as stretched valuations present what I believe to be a suboptimal risk-reward profile. As legendary investor Howard Marks reminds us, “It’s not what you buy, it’s what you pay.”
Our portfolios remain defensively tilted, with a focus on high quality, dividend paying stocks and broad international exposure. I’m maintaining a flexible approach to fixed income, with a slight underweight to duration and selective credit exposure as we watch how growth and inflation trends develop. Commodities and core alternatives remain equally weighted, providing additional balance and diversification across the portfolio.
All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.
Standard & Poor’s 500(S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.
Dow Jones Industrial Average (DJIA) is a price-weighted index of 30 actively traded blue chip stocks. Indexes are unmanaged and do not incur management fees, costs or expenses. It is not possible to invest directly in an index.
Nasdaq is a global electronic marketplace for buying and selling securities. Originally an acronym for "National Association of Securities Dealers Automated Quotations"—it was a subsidiary of the National Association of Securities Dealers (NASD), now known as the Financial Industry Regulatory Authority (FINRA). Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.
Any charts provided here are for informational purposes only, and should also not be relied upon when making any investment decision. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. Information in charts have been obtained from third-party sources and data, While taken from sources believed to be reliable Advisory Services Network, LLC has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.
1 Source Y-Charts as of market close on June 30, 2025, 2 Source Y-Charts as of market close on July 10, 2025 3Schwab.com/learn/story/international-stock-market-outlook: “Mid-Year Outlook: International Stocks and Economy”4Privatebank.jpmorgan.com/latam/en/insights/markets-and-investing/q2-2025-investment-review-steady-hands-prevail5 https://www.jpmorgan.com/insights/outlook/economic-outlook/cpi-report-may-20256Y-Charts, GLD performance through June 30, 20257www.goldmansachs.com/insights/articles/why-gold-prices-are-forecast-to-rise-to-new-record-highs 8www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html