Second Quarter Market Update 2025: June's Giant Jump
Patience has been the key so far in 2025. In reality, patience is always the best practice when it comes to investing, but understandably, the first four months of the year tested many people's patience. I know, I definitely did some ledge talking earlier this year when markets were moving wildly. Thankfully, things have recovered.
To recap, at the end of Q1, U.S. markets were down -4.27% to -9.28%. Then, liberation day (also known as tariff announcement day) occurred at the beginning of April, causing another selloff. By the end of April, the S&P was down nearly 13% for the year.
Most of the tariffs were paused shortly after the initial announcement, which helped markets bounce back. Additionally, and more importantly, inflation came back mild on most reports so far this year. The mild inflation and solid earnings from companies created a stellar quarter for stocks as nearly all markets surged.
Growth stocks (also known as tech stocks) surged the most on essentially optimism for AI. But as you can see below, international markets really had a great quarter as well.
At quarter end, nearly all markets were up for the year, with the exception of small-cap stocks. This is an area we believe is currently undervalued, particularly with the passage of the “big beautiful bill,” which is more advantageous to small companies than to large ones. In the first few weeks of July, we have witnessed small caps rally significantly, and as of July 1, they are no longer negative for the year.
I’d like to note on the chart below, which shows the quarter-end performance for the major asset classes, the dramatic outperformance of international and emerging markets versus domestic markets. This is in contrast to the trend that has been unfolding over the past few years, and frankly, it was overdue (this is why we maintain global diversification).
As for the reasons behind the massive market rebound, we can point to several items.
1. Stronger than expected corporate earnings.
2. Mild inflation reports.
3. A tone down of tariff rhetoric.
4. A calming of global tensions (debatable).
The real question is, will this market continue to perform?
Ultimately, I think we are going to see some more tariff volatility. This will be a trend that, frankly, will shock markets, but then the news will settle, negotiations will happen, and markets will rebound.
Inflation is a huge question. The trend seems to be that things have cooled off, and if that continues, the Federal Reserve will cut rates and the market will do a happy dance.
Corporate earnings are a product of all these other factors, so it's certainly tough to say, but I believe the peace of mind that comes with the tax bill being passed gives businesses the ability to plan, spend, and grow their businesses. A company not knowing what the tax code will be is certainly a reason for hesitation. They no longer have that reason. This is good for jobs, investments, and growth. Possibly bad for the budget, but that is a whole other topic.
I’m no geopolitical expert, and I don’t pretend to be one, but I know that ceasefires are good. War is bad. I’d love to see Ukraine and Russia resolved, but at least for now, we have a ceasefire in the Middle East.
Written by: Brice Carter
This commentary on this website reflects the personal opinions, viewpoints, and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.