Q2 2025 Quarterly Market Commentary

After a volatile start to the year, equities staged a strong rebound over the last three months.

In the first quarter, market sentiment was cautious due to rising policy and tariff uncertainty, concerns about slower economic growth, and questions about the longer-term outlook in the artificial intelligence industry.

In the second quarter, caution gave way to renewed optimism as tensions eased, tariffs had a limited economic impact, and companies posted stronger-than-expected first-quarter earnings. The dramatic shift in sentiment across the quarters created two distinctly different market environments.

The first half of 2025 was busy and eventful, but for all that happened, markets ended the first half not far from where they started the year. The S&P 500 returned 6.1% through the end of June after being down by over 15% at one point in April. Long-term interest rates, as measured by the 30-year U.S. Treasury bond yield, ranged from 4.40% to 5.10% but ended the first half of the year right where it started, near 4.80%. If one did not follow the markets closely, it might seem as though little had changed.

In this commentary, we recap the second quarter, discuss how market conditions changed from the start of the year, and look ahead to the second half of 2025.

Markets Were Volatile Due to Waves of Policy Uncertainty

This year has been defined by large, frequent shifts in U.S. trade policy. There were periods of increasing tariffs and targeted actions against trading partners, followed by exemptions and temporary agreements. While the first quarter was marked by trade escalation, the second quarter saw a significant shift toward de-escalation.

The escalation started in February and March with targeted tariffs on imports from China, Canada, and Mexico, along with broader duties on global steel, aluminum, and auto imports. Tensions peaked in early April with the announcement of sweeping tariffs on most imports.

However, the tone quickly shifted a week later toward de-escalation, when the Trump administration paused reciprocal tariffs for all trading partners except China. By early May, the White House announced a trade agreement with China, signaling a further move toward easing tensions.

While the second quarter’s de-escalation efforts lowered tariffs from the initial extreme levels, uncertainty remains. In late May, a U.S. trade court ruled the tariffs unconstitutional, and by early June, the administration was weighing new tariff actions. As July and August deadlines on tariff exemptions approach, the policy environment remains fluid, with several key details still unresolved.

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