Market Recap – June 2025: Risk assets were King of the Mountain during June and Q2, as a reversal in sentiment drove stocks higher, bringing the majority of major asset class returns positive year-to-date. The market has continued to exhibit that the faster it falls, the quicker it recovers, as Q2 2025 showed investors that the hard data remains to favor the bulls. In just eleven weeks, the market witnessed one of its strongest rallies on record, while volatility, as measured by the VIX, saw its sharpest collapse ever. In fact, the S&P 500 strung together its quickest recovery ever after a 15% or more drop, only taking 55 trading days to recoup the losses:
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- Heading into this year, US stocks had outperformed International stocks for over 16 years, by far one of the longest runs of relative performance in history. So far, it appears that this trend has finally been bucked, with both the MSCI EAFE and MSCI Emerging Market Indices beating the local brethren by 13.74% and 9.32%, respectively. Much of this relative performance has come from currency translation and International valuation expansion
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- Unlike the past few years, the Magnificent Seven names are not moving in tandem but are showing divergent performance thus far in 2025. Meta, Microsoft, and Nvidia are outperforming the S&P 500, while Amazon, Google, Apple, and Tesla are all down this year. But, overall, mega-caps led the market higher in the U.S., and market breadth was very narrow.
Wild Start to the Year – Longer Recap: A narrow rally in the first few weeks, then punishing weakness in February/March (led by Tech) as global allocators moved investments outside the U.S., then “Liberation Day” collapse of all risk assets globally, followed by a rapid recovery led by Tech stocks recovering all “Liberation Day” losses, before finally some fear again getting priced into the market as the U.S. debates continue around the “One, Big Beautiful Bill” and tariffs and de-regulation (Treasury Secretary Bessent’s three-legged stool), making the combined impact on the U.S. government budget and economy incredibly difficult to determine. Equity and bond markets assumed near recession in early April, followed by overheating risk by mid-May. Uncertainty is likely to reign at least until at least July/August when 90-day tariff reprieves end and the One, Big Beautiful Bill is signed into law. Meanwhile, hard economic data continues to chug along, and earnings remain resilient, which has allowed the S&P 500 to turn positive on the year during the month of June.
The Market Moving Forward: It appears that the market is entering a period where it can see a moderation of the hard economic data, but not enough to warrant a recession. If markets price in deeper rate cuts off the back of this, combined with seasonally supportive flows into bonds, then this will only serve to ease financial conditions further. Meanwhile, the forward-looking sentiment data should continue to improve with economic tail risks diminishing and expansionary fiscal policy on the horizon. This, combined with continued AI-driven investment and innovation, should continue to support risk assets once we move beyond the current geopolitical tensions. We may be headed into a Goldilocks summer with both bond and equity markets performing well.
An Update on the D.C. Administration: Trump is following the opposite order of operations of his first term, when he focused on deregulation and enacting tax cuts before engaging in a modest trade war targeting China. In his second term, he is imposing broad tariffs, including a 10% universal tariff on nearly every country and 25% sectoral tariffs, which raised the odds of a recession and halted business activity before Trump began to walk them back. Congress is moving forward on a tax bill that will provide tax relief for consumers in 2026 and tax cuts for businesses to encourage investment. The House passed its version in late May. Now it moves to the Senate. If the bill is enacted by July 4, before higher tariffs may come into effect, that would be a positive and would help to sterilize the tariff impact for consumers and businesses. Nevertheless, additional sectoral tariffs remain a risk going forward.
Earnings Season Update – Q1 2024: Overall, earnings had a party this past quarter – 78% of companies beat, which is much higher than the historical average. If you remember, heading into this earnings season the market was pricing in ~8% year-over-year (“YoY”) growth. It came in at 14.0%, led by strong revenues. The critics would say that attention needs to be turning to the second quarter, where the impact of tariffs is expected to play a more significant role. Our thesis for this quarter and (likely) the next few would be that the AI narrative and the capital expenditures (“CapEx”) will continue to drive earnings. While the durability of this trend came under scrutiny at the start of earnings season, the largest companies have shown little indication of scaling back investment. Remember, the Magnificent Seven (“Mag 7”), which are basically tech-proxies and directly tied to the AI-movement, equate to 31.4% of the S&P 500. Said another way, a lot of the contribution to earnings for the S&P 500 seems quite stable.
Politics and Markets: The market is not political. It doesn’t care about draining swamps, political retribution, woke or anti-woke campaigns or DEI initiatives. The market only cares about policies that:
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- Increase (or decrease) earnings, and
- Support growth (or hinder it).
Any political movement or agenda that is viewed by the market as getting in the way of better earnings and growth will be viewed as negative and be a headwind on risk assets, regardless of whether those policies are from Republicans or Democrats. This is the way we must view political coverage over the next year (and likely four years), and this will help us cut through the noise and stay focused on the policies that will impact markets.
S&P 500 EPS: ’25 (Exp.) EPS = $264.00 (+7.7%). ‘24 EPS = $245.16 (+11.5%). 2023 = $220 (+8.6%). 2022 = $219 (+0.5%). 2021 = $204.*
Valuations: S&P 500 Fwd. P/E (NTM): 23.x, EAFE: 15.2x, EM: 12.7x, R1V: 17.4x, and R1G: 29.7x. *
*Source: Bloomberg and FactSet, Data as of 6/30/25
Disclosures
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This commentary offers generalized research, not personalized investment advice. It is for informational purposes only and does not constitute a complete description of our investment services or performance. Nothing in this commentary should be interpreted to state or imply that past results are an indication of future investment returns. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with an investment & tax professional before implementing any investment strategy.
Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Forward-looking statements cannot be guaranteed.
The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 11.2 trillion indexed or benchmarked to the index, with indexed assets comprising approximately USD 4.6 trillion of this total. The index includes 500 leading companies and covers approximately 80% of available market capitalization.
The Nasdaq Composite Index measures all Nasdaq domestic and international-based common type stocks listed on The Nasdaq Stock Market. To be eligible for inclusion in the Index, the security’s U.S. listing must be exclusively on The Nasdaq Stock Market (unless the security was dually listed on another U.S. market prior to January 1, 2004 and has continuously maintained such listing). The security types eligible for the Index include common stocks, ordinary shares, ADRs, shares of beneficial interest or limited partnership interests and tracking stocks. Security types not included in the Index are closed-end funds, convertible debentures, exchange traded funds, preferred stocks, rights, warrants, units and other derivative securities.
The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.
The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries*around the world, excluding the US and Canada. With 902 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
The MSCI Emerging Markets Index captures large and mid-cap representation across 26 Emerging Markets (EM) countries*. With 1,387 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
Investment-grade Bond (or High-grade Bond) are believed to have a lower risk of default and receive higher ratings by the credit rating agencies. These bonds tend to be issued at lower yields than less creditworthy bonds.
Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities.
Nasdaq-100® includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization.
The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. This includes Treasuries, government-related and corporate securities, mortgage-backed securities, asset-backed securities, and collateralized mortgage-backed securities. ACA-2407-3.
