July 2025 Market Outlook
The second quarter of 2025 was defined by a sharp, and at times uneasy, market rebound, after the dramatic selloff at the end of Q1. The quarter began with markets still digesting the impact of the Trump Administration’s April 2nd tariff announcements, which implemented significantly higher and broader tariffs than the market was originally expecting. However, within a week, all tariffs were reduced to 10% on all countries except China, while “90 day” negotiations commenced. This initial uncertainty was compounded by fluctuating expectations for Federal Reserve policy. Much of the volatility from April’s unexpected tariff shock subsided by mid-May, as the administration softened its stance, rolling back certain provisions and exempting key trading partners from the steepest levies...for now. Despite the Federal Reserve’s decision to hold rates steady in May, June brought a significant de-escalation in U.S.-China trade tensions, providing a much-needed boost to global equities. Markets responded swiftly, with risk appetite returning even in the face of lingering trade policy and corporate earnings uncertainty.
Measures of trade policy uncertainty have pulled back since April but remain elevated.
Investor sentiment was buoyed by signs that the Federal Reserve was prepared to act in response to slowing economic activity. While inflation remained elevated due to persistent supply chain pressures and potential tariff passthroughs, the Federal Reserve reiterated its willingness to support the economy if downside risks intensified. This cautious optimism, paired with strong earnings in tech and resilient consumer data, helped fuel a broad-based rally into the end of June.
Portfolio Highlights
Despite tariff uncertainty heading into the second half of the year, we remain positive on equities. Our allocation to large-cap stocks remains unchanged, particularly considering potential deregulation and tax incentives in the “One Big Beautiful Bill” that recently passed into law. Though our overall exposure to international equities is not changing, we are adding small to mid-cap exposure given the attractive valuations in the space. On the fixed-income side, we maintain a constructive stance on the short-term bonds and continue to decrease our duration in the face of the expanding national debt and potential tariff retaliation.
Market Review
Markets staged a strong comeback at the end of the second quarter, reversing most of the damage sustained in March and April. The second quarter presented a mixed picture, starting with continued volatility from the April 2nd tariff announcements, but finding renewed optimism in June. This was largely driven by constructive trade talks between the U.S. and China, which led to a partial rollback of some China-specific tariffs and a significant reduction in overall trade uncertainty. Stronger-than-expected jobs reports and resilient consumer spending data further bolstered confidence, suggesting the economy was more robust than previously feared.
The S&P 500 rose 10.6%, marking one of its best quarterly gains in recent years. The tech-heavy Nasdaq surged an even stronger 17.6%, powered by outsized gains in AI-related stocks and cloud infrastructure companies. The Dow Jones Industrial Average posted a more modest 6.0% return, reflecting defensive sector drag and continued uncertainty around global industrial activity. All major indices are back in positive territory for the year.
International equities, including emerging markets, also advanced in the second quarter thanks to continued fiscal stimulus, an easing of trade tensions, and a weaker dollar.
Bond markets, meanwhile, were choppy. After falling in April as investors fled to safety, yields moved significantly higher in May, forcing the 10-year U.S. Treasury yield up near 4.60%. However, yields normalized in June, and the 10-year U.S. Treasury yield ended the quarter at 4.23%, very near to where it began. Corporate credit spreads tightened during the quarter, a sign of improved market sentiment towards corporate performance despite tariff uncertainty.
The Fed and Looking Ahead
The Federal Reserve held rates steady at 4.25%–4.50% during the quarter. Though the administration’s new tariffs have not been as inflationary as some predicted, inflation remains above target, with core PCE holding near 3.1%. While the immediate prospect of aggressive rate cuts has diminished, Chairman Powell emphasized that the path of monetary policy remains data dependent. This suggests that future cuts are still on the table, albeit at a more measured pace. Both the Federal Reserve and the market project two rate cuts by year-end, as the central bank balances the need to support growth and employment against the imperative to contain inflation, particularly given the lingering effects of trade policies. The central bank now faces a familiar balancing act: managing elevated inflation while avoiding overtightening in the face of softening demand and global uncertainty.
Looking ahead, investors will need to navigate the same key variables: the trajectory of inflation, further developments in trade policy, and the evolving stance of the Federal Reserve. Corporate earnings season in July will provide additional insight into the durability of the recovery, particularly outside of the dominant mega-cap tech names. However, new tariffs on key trading partners that are set to go into effect on August 1st will most likely re-introduce uncertainty and volatility into the markets.
As always, maintaining a diversified portfolio across asset classes remains essential for navigating today’s market volatility. Staying invested and avoiding reactionary decisions during periods of uncertainty continues to be a cornerstone of long-term success, particularly as geopolitical tensions and heightened tariff uncertainties play out.
Each investor's risk tolerance and objectives are unique, so we encourage you to consult with your financial advisor, especially during these turbulent times, to assess how this information might affect your overall investment strategy.
