Markets in Motion: 2025 Mid-Year Update 

By Brett Gottlieb

Our Q2 Market Update shows a mix of economic growth and market fluctuations. GDP growth estimates were lowered amid concerns about the labor market and ongoing uncertainty surrounding the Administration’s shifting tariff policies, which changed frequently in deadlines, rates, and which imported goods were affected.

This uncertainty fueled volatility in financial markets. After the “Liberation Day” tariff announcement on April 2nd, equities took a sharp hit, only to gradually recover through May and June, eventually surpassing earlier highs. Meanwhile, international markets performed strongly, outpacing other sectors. Tensions from the Israel-Iran conflict and U.S. strikes on Iran’s nuclear sites briefly rattled markets, especially oil and natural resources, but a swift ceasefire helped calm investor fears.

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.

See What the Q2 Market Update Means for You

Managing market fluctuations is difficult, especially in light of the insights from our Q2 Market Update and today’s ever-shifting economy. If recent changes have you rethinking your financial plan, now’s a great time for a review.

At Comprehensive Advisor, we’re ready to support you. Contact our team to align your investments with your goals and comfort with risk, so you can confidently pursue the future you want. Email us at info@ComprehensiveAdvisor.com or call (760) 813-2125.

About Our Advisors

Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees, in business administration and economics, and is Life Insurance licensed in several states. He is passionate about guiding his clients on retirement income planning, helping each client pursue their specific retirement goals, and defending the assets his clients have worked so hard to achieve. Brett is a California native and currently resides in San Elijo Hills with his beautiful wife and three children.

Our team of qualified professionals have experience in the financial service industry, and our advisors hail from some of the largest independent broker/dealers and banking institutions in the country. They have dedicated their professional careers to creating personalized financial strategies for individuals and families who seek successful retirement planning and currently offer investment advisory services through AE Wealth Management, LLC. Our advisors take a common-sense approach to the planning process and work with clients to create a comprehensive retirement roadmap to help ensure their assets are preserved and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County and beyond. Learn more by connecting with Brett on LinkedIn or email them at info@ComprehensiveAdvisor.com.

Insurance products are offered through the insurance business C.A. Financial & Insurance Services. Comprehensive Advisor is an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. AEWM does not offer insurance products.  The insurance products offered by C.A. Financial & Insurance Services are not subject to Investment Adviser requirements. AEWM and C.A. Financial & Insurance Services are not affiliated companies. CA Ins. Lic. #6000262.3145387 – 7/25