Q2 2025 was shaped by the “Tariff Two-Step”—a swift policy reversal that triggered both a market drop and a quick recovery. Despite mid-quarter uncertainty, diversified investors saw strong gains by quarter’s end. On April 2, President Trump announced sweeping tariffs, sparking a sharp market decline. A week later, the administration paused enforcement, prompting a relief rally that carried through the quarter.
U.S. markets bounced back, with the S&P 500 and Russell 2000 recovering from early losses. International equities outperformed both in Q2 and year-to-date, supported by global policy optimism. Though consumer sentiment dipped briefly, it has since improved. The Fed stayed on hold, waiting for clear signals in economic data.
Q2 reminded investors that volatility can be temporary—and long-term diversification pays off.
International Equities Continue 2025 Dominance
As we review the market landscape of the second quarter of 2025, one theme remains consistent: navigating volatility through diversification.
At the heart of our Q2 analysis is the continued strength of diversified portfolios composed of equities, fixed income, commodities, and REITs. The good news is that most asset classes were positive in Q2, resulting in strong year-to-date returns for 2025.
Volatility in the Market
As we look back at the first half of 2025, one thing is clear: volatility returned to markets in a big way—and diversification once again proved its worth.
At the heart of this review is the rapid shift in investor sentiment caused by policy changes, geopolitical tensions, and weakening economic data. Despite sharp swings, long-term investors who maintained a diversified strategy were rewarded with renewed gains by the end of the quarter.
Consumer Sentiment & Consumer Behavior
As we reflect on the market conditions in the first half of 2025, one theme is becoming more apparent: the U.S. consumer remains a powerful force—even amid declining sentiment.
At the heart of our midyear review is the role of personal consumption expenditures, which continue to drive a significant share of GDP. Despite a challenging economic narrative, spending behavior tells a more resilient story.
Looking Ahead: What to Watch in Q3
While markets rallied in Q2, uncertainty remains around the potential reimplementation of tariffs. If enforced, these trade policies could reignite inflationary pressures and slow growth. Investors should also monitor whether the Federal Reserve sees enough in the data to shift its stance, and whether global markets can maintain their momentum amid ongoing geopolitical risks.
Staying flexible, diversified, and focused on long-term goals remains key heading into Q3.
Have questions about what this means for your strategy? Connect with your advisor or contact our team directly.
