Market Commentary June 30, 2025

Market Commentary June 30, 2025

While the second quarter of 2025 started with a steep sell-off, US equity markets rebounded broadly leading to modest returns for the first half of the year.  The S&P 500 rallied 10.6% in Q2 and is up 5.5% year-to-date (YTD). The S&P 500 Equal Weighted (S&P EW) ended the quarter up 5.0%, and 3.8% YTD.  International stocks built on their first quarter gains with MSCI EAFE Index up 10.6% in Q2 and up 17.4% YTD. Bonds were up as well in Q2 as the Bloomberg US Intermediate Term Corporate Bond Index increased 2.1% and 4.5% YTD. On April 1st, the Trump administration formally announced its reciprocal tariff plan, with the proposed rates largely higher than previously expected. This move intensified market volatility and raised concerns about inflation and global supply chain disruptions.  However, while the initial reaction resulted in a broad market sell off including a strong reaction from the bond market, equity markets rallied in the quarter as the administration announced delays to tariff implementation and trade deal discussions with several countries such as China and the UK.

The change in the risk appetite of the equity market was evident as more conservative dividend and low volatility stocks that had won favor in the first quarter of 2025 underperformed the market in 2Q25.  Momentum and growth stocks once again assumed leadership for equities.   

For bonds Q2 of 2025 was volatile.  Bond yields were pushed around by public policy (government budgeting, tariffs) debates, inflationary perceptions and expectations around potential Fed cuts – bond yields started the quarter sharply lower before moving higher.  Only the 30 year Treasury yield broke through the range to stay notably higher by the end of the quarter.  

In the second quarter, U.S. economic indicators painted a picture of a resilient but cooling economy. The labor market remained relatively strong, with the unemployment rate holding steady at 4.1%. However, job growth slowed compared to earlier in the year, and gains were concentrated in sectors like healthcare and state government. Inflation remained elevated, with the Federal Reserve’s preferred measure (core PCE inflation) projected to remain above the Fed’s 2% target for the year. Meanwhile, real GDP growth projections were revised downward, with the Fed now expecting just 1.4% growth for the year, reflecting the drag from tighter financial conditions and uncertainty surrounding trade policy. These dynamics contributed to a cautious tone in financial markets and tempered expectations for near-term interest rate cuts.

The Fed maintained its wait-and-see stance on rate cuts throughout Q2, citing uncertainty around inflation and the economic impact of tariffs. Markets remain optimistic that there will be some short-term interest rate relief, currently pricing in two rate cuts for the remainder of 2025, one in September and another in December. However, we would remind investors that the market has been overly optimistic about the pacing and magnitude of rate cuts from the Fed for the last several years. 

On top of tariffs and Fed policy, markets also attempted to digest the largest changes to the US structure since 2017.  The “One Big Beautiful Bill,” permanently extended the 2017 tax rates, increases the standard deduction and child tax credits among a myriad of other provisions.  A mixed bag of policies from a tax perspective, but we expect the bill will lead to a modest lift in GDP in the near-term.  While the Congressional Budget Office cautioned about increased deficits over the next 10 years, the bill will be supportive to consumer spending and investment over the next few years.

US equity markets have historically performed well in the first year of a President’s term as the economy has tended to expand after the impact of the election subsides.  There are plenty of reasons to be optimistic about the markets, but the combination of higher interest rates and elevated inflation make it difficult to extrapolate historical market gains.  Equity markets appear to be pricing in a best-case scenario and remain highly sensitive to news on tariffs and inflation.

Overall, we remain cautiously optimistic about the markets as economic fundamentals remain solid, and the impact of tariffs and rate hikes is still uncertain.  We will be watching these developments closely in the second half of 2025 and adjusting our investment strategy accordingly.

Rob Richardson, CFA

Chief Investment Officer

Important Disclosures

Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal. The S&P 500 Index is a recognized benchmark used by investors and the investment industry for the equity market. Indexes are not a managed portfolio and are not subject to advisory fees or trading costs.  Investors cannot invest directly in the S&P 500.  Indexes and/or market benchmarks references used throughout this report remain the copyrighted property of their respective owners. Before investing, please carefully consider your investment objectives, risks, charges, and expenses. Views expressed do not necessarily represent the views of S.G. Long Financial Service Corp. (“SGLFS”) and are subject to change at any time based upon market or other conditions. The information provided is for general informational purposes only and should not be considered individualized or personalized investment advice.

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