As you review your financial plan, it’s important to understand the market forces that shaped Q2. The latest Market Update highlights a blend of economic progress and periods of volatility. While GDP growth projections were adjusted downward due to concerns around a cooling labor market, much of the uncertainty stemmed from the Administration’s evolving tariff policies, marked by shifting timelines, changing rates, and unclear targets on imported goods.
These uncertainties stirred market volatility. After the April 2nd “Liberation Day” tariff announcement, equity markets dipped sharply before rebounding through May and June to reach new highs. International markets, in particular, showed strong performance relative to other sectors. Geopolitical tensions, including the Israel-Iran conflict and U.S. strikes on Iranian nuclear sites, briefly shook investor confidence, especially in energy and natural resource markets, but a prompt ceasefire helped restore stability.
Q2 Performance Review
U.S. equity markets experienced a free-fall after April 2nd (Liberation Day) when double-digit tariffs across the board were announced by the Trump Administration, taking businesses and investors by surprise. These shockwaves were a reason the S&P 500 and Nasdaq fell over 13 percent and the Dow fell nearly 11 percent from April 2nd through April 8th. U.S. equity markets recovered somewhat by May and then began an upward trend to exceed the previous highs (set in mid-February) by the end of June.
International markets also fell in April, but recovered sooner and quicker than the U.S., with emerging markets and Asia leading the way.
In the bond market, Treasury yields were volatile as well, due to concerns over potential inflationary pressures by the pending Trump tariff policies. 10-year Treasury yields rose to 4.80% early in the year, then were mixed through the rest of the quarter and had fallen to 4.39% as of June 27th.
Pullbacks in growth expectations and amended Fed rate cuts lead to lower yields later in the quarter, particularly for lower-duration issues. The yield curve steepened as the difference between 2- and 10-year yields increased above 0.5%. The bond market is also reacting negatively to the estimated trillions in additional national debt in the proposed legislation winding its way through Congress during the second quarter. The U.S. dollar has experienced its largest six-month decline since 1973, falling over 10% against other major currencies.
Sector and Asset Class Performance
U.S. stock markets reversed their April slide and ended the quarter with new highs. The S&P 500 gained 10.57% since March 31st and advanced 24.5% since the April 8th low. The Dow advancement was more modest, clocking in at just under 5%. Hardest hit in April was the Nasdaq Composite, but the tech-heavy index came roaring back, gaining 33% since the April 8 low and ending the quarter with an 18% gain overall.
After leading stock indices downward in the first quarter, global growth stocks (powered once again by the Magnificent 7 Big Tech stocks) led the way for market advances in Q2 with a 17.7% gain in the quarter.
Surprisingly, dividend stocks proved their resiliency in tough conditions, rising 6.5% as of June 20th. Value stocks lagged growth for the quarter, but still maintains the top spot for U.S. stock year-to-date.
International bonds are the stars of the fixed-income market with U.S. Treasuries and bonds affected by the weakened dollar. Global inflation-linked bonds and investment-grade bonds led all other sectors with 4.7% and 4.4% gains, respectively. U.S. high-yield bonds gained 3.3% for the quarter while range-bound U.S. Treasuries barely budged.
International markets continued their gains with emerging markets advancing 12.2% in the quarter. Easing trade tensions between the U.S. and China, along with the weaker dollar, helped EM gains, with Asia as the top-performing region.
For the quarter, technology, industrials, consumer discretionary, and consumer staples were top-performing sectors. Energy (oil) and healthcare were laggards, each posting more than 6% in losses.
Federal Reserve and Economic Analysis
Market expectations for the Federal Reserve (FOMC) to cut rates have fluctuated. The Fed continues to believe that inflation, while currently under control, has the potential to strengthen on the back of lingering tariff influences. The FOMC believes tariff pressures on prices have not yet worked their way into the U.S. economy and wavering Administration policy regarding tariffs with various countries is causing business and consumer uncertainty.
Currently, Fed Chairman Jerome Powell expressed caution regarding expectations for interest rate cuts, despite continued public criticism by the Administration, and in its June meeting, the Fed maintained its “wait and see” monetary policy, with a target range for the Fed Funds Rate still at 4.24% to 4.5%. The Fed still projects two 0.25% rate cuts later in 2025, based on updated economic projections, and downgraded its economic outlook for 2025.
The Fed is closely monitoring the impact of tariff policy and its effects on the economy. Q1’s surprising 0.3% contraction in GDP surprised investors and the financial markets, and as of its June meeting, the Fed is projecting a somewhat lower GDP forecast for the year with potentially higher inflation and higher unemployment.
Investment Strategy
The uncertainty of the U.S. government’s trade and tariff policies, the falling dollar, and the pending effects of tariff inflation on economic growth (including how the Fed will respond) suggests that caution and wide diversification remain watchwords for investors. Slowing economic growth and pressure from the White House to lower rates may suggest that interest rate cuts could materialize, however, the Fed’s concern about inflation should remind everyone of the adage “Don’t fight the Fed.”
Now that tech has regained the losses of Q1 and value continues to build gains, across-the-board allocations in stocks may be a good choice for most. With international markets leading global advances, some overweight in emerging markets and inflation-linked global bonds may be considered. Fixed-income investors may look to an allocation toward high-yield and inflation-mitigating bond investments to combat any potential inflation that could creep into the economy, if tariff pressures appear in supply costs and consumer pricing.
Overall, although the economy appears resilient, there appears to be enough contradictory evidence over which direction it will take that wide diversification and investment-risk management may be wise through Q3 and the summer months.
Wondering What Q2 Means for Your Portfolio?
Strategizing around today’s changing market landscape can be challenging, especially with the takeaways from our Q2 Market Update and the unpredictability of the current economy. If you’re questioning whether your financial plan is still on track, now is a smart time to reassess.
At Premier Planning Group, we’re here to help you move forward with clarity. Let’s take a closer look at your investment strategy and align it with your long-term goals and comfort with risk. Call our office at (443) 837-2520 or email my executive assistant, Talia Grover, at taliagrover@premierplanninggroup.com to set up a complimentary consultation.
About Brion
Brion Harris is the CEO, founder, and managing partner of Premier Planning Group, an independent financial firm specializing in working with pre-retirees and retirees, helping them create customized wealth preservation and retirement distribution strategies. With over 20 years of experience, Brion has developed deep knowledge and skill in helping his clients simplify their finances and find confidence in their financial future. Brion and the Premier Planning team are known for their unparalleled client service and their dedication building long-lasting relationships with their clients. As a result, Brion has been the recipient of the #1 Advisor Leadership Award* at Summit Brokerage Services for eight years running and has a reputation as one of the top retirement advisors in the business.
Brion is a proud 20-year resident of the Annapolis community, where he resides with his wife, Elizabeth, their three children, Addison, Jay, and Scarlett, and their two dogs, Pepper and Coco. When he’s not working, you can find him boating, skiing, traveling, and enjoying good food and music with his family. If you want to learn more about Brion, connect with him on LinkedIn.
*The #1 Advisor and Leadership Award is based on production data while at Summit Brokerage Services, Inc. Brion Harris received the award in 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 2021. This award is not a guarantee of future investment success. This recognition should not be construed as an endorsement of the advisor by any client.