For a wide array of reasons, ranging from trade wars to military conflicts, and from mass protests to a spike in the price of oil, the second quarter was a period of conflict and volatility. However, while any one of these factors might have been sufficient in its own right to generate significant market turmoil during more “normal” times, there was but one factor that ultimately seemed to drive almost every twist and turn in the markets, and that was the President’s trade and tariff policies.
The equity markets started the quarter in the midst of a fairly sharp decline, as investors awaited President Trump’s highly anticipated April 2nd “Liberation Day” announcement, and then suffered an additional, historically sharp decline, when the president’s much higher than expected tariff rates were perceived as being so draconian that they could put the entirety of the global economy at risk. This included the worst two-day selloff in U.S. equities since the COVID-19 pandemic. 1
However, less than one week later, when the President announced a 90-day hold on almost all of those planned tariffs, it catalyzed a complete sea-change in both the outlook for the global economy and the capital markets. The rebound in domestic equity prices, in particular, was almost as impressive as had been the decline, especially for growth stocks. The S&P 500 responded to the April 9th 90-day postponement of the “Liberation Day” tariffs with a one-day gain of +9.5%, its third-largest single-day gain on record. 2
Of note, according to Bespoke Investment Group, the second quarter witnessed the widest outperformance (by 16.3%) of the S&P 500 Growth Index over the S&P 500 Value Index in the history of the two indices, which dates back to the mid-1990s. It broke the previous relative performance record of +13.5%, which was set back in the second quarter of 2020, when the Federal Reserve first started aggressively stimulating the economy to help offset the COVID-related economic shutdown.
Indeed, according to the same Bespoke report, “the similarities are pretty remarkable between the first half of 2020 when we saw a V-shaped recovery from the COVID Crash, and the V-shaped recovery we saw in the first half of this year after the Tariff Crash”. 3
Over the past 100 years, the S&P 500 has dropped 10% and then rebounded to a gain within the same calendar quarter only three times. This is one of them. 4 When all was said and done, the S&P 500 staged its quickest-ever recovery to all-time highs after dropping 15% or more, 5 and the S&P 500 and Nasdaq 100 Indexes both finished the roller coaster of a quarter at all-time highs.
Unfortunately, while the rebound was very impressive on the surface, a closer inspection shows that it was rather narrowly based and somewhat speculative in nature. Aside from the traditional powerhouse mega-cap growth stocks like Microsoft, Nvidia, Amazon, Google, Meta (Facebook) and Netflix, which rose on strong corporate earnings, and the big “money center” banks, like JP Morgan, Bank of America and Wells Fargo (which are benefiting from a lighter regulatory environment), most of the notable gains came from smaller, more specialized sectors like nuclear energy, gold miners, defense stocks, and artificial intelligence-related stocks.
As noted, much of the second quarter also had a somewhat frothy feel to it, with lower quality and more speculative asset classes representing many of the top-performers including, as examples, crypto-related stocks, quantum computing-related stocks, meme stocks, non-profitable technology stocks, high beta (highly volatile) stocks, artificial intelligence-related companies, and the most heavily-shorted stocks (i.e., stocks that speculators borrow and sell, with the expectation of being able to repay the loan by buying the shorted-stock back at a price lower than what they paid).
Quarterly returns in the global equity indexes were both widespread and substantial. While the Dow Jones Industrial Average gained a normally very impressive 5.5%, its gains paled in comparison to the NASDAQ Composite (+18.0%) and the S&P 500 Index (+10.9%). Small and mid-sized stocks continued to lag, with the S&P 600 Small-Cap and S&P 400 Mid-Cap Indexes gaining 4.9% and 6.7% respectively. 6
Not to be outdone, most foreign equity markets, which dramatically outperformed the U.S. markets in the first quarter, continued their strong performance. From the perspective of a U.S. investor (i.e., in U.S. dollar terms), the average European stock gained 11.4%, the average developed Asian stock gained 12.3% and the average emerging market stock gained 12.0%. 7
The impact of the reciprocal tariff announcement was not limited to the equity markets. For example, U.S. 10-year Treasury yields rose a remarkable full half-percent (50 basis points) between the 4th and the 11th of April. 8That said, as was the case with the equity markets, most fixed income securities, excluding municipal bonds(-0.1%) and long-term Treasury bonds (-1.5%) were able to post modest gains during the quarter. 9
The bond market as a whole, as represented by the Bloomberg Aggregate Bond Index, gained 1.2% during the second quarter, while debt with equity-like characteristics, including high-yield debt and convertible bonds, gained 3.5% and 8.1% respectively. 10 These sectors likely benefitted from the fact that U.S. economic strength has remained quite resilient despite all of the quarter’s turmoil.
While US stocks and bonds recovered from April’s sharp losses, the US dollar saw continued declines, with the dollar index ending the quarter down a whopping 7.1%. 11 Joining the dollar index in its decline were the majority of commodities, with quarterly losses in the three main commodity indexes ranging from -2.8% to -3.1%. 12
It is said that “investors climb a ‘wall of worry’”, which means that the greatest upside potential of a market often coincides with a peak in investor fear and pessimism. At the start of the second quarter, that “wall” was very high, and investors, many of whom appeared to be aggressively buying virtually every decline, proved to be very resilient and remarkably agile climbers.
Disclosures
Advisory services offered through Per Stirling Capital Management, LLC. Securities offered through B. B. Graham & Co., Inc., member FINRA/SIPC. Per Stirling Capital Management, LLC, DBA Per Stirling Private Wealth and B. B. Graham & Co., Inc., are separate and otherwise unrelated companies.
This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
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This document may contain forward-looking statements based on Per Stirling Capital Management, LLC’s (hereafter PSCM) expectations and projections about the methods by which it expects to invest. Those statements are sometimes indicated by words such as “expects,” “believes,” “will” and similar expressions. In addition, any statements that refer to expectations, projections or characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Such statements are not guarantying future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual returns could differ materially and adversely from those expressed or implied in any forward-looking statements as a result of various factors. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of PSCM’s Investment Advisor Representatives.
The information presented is not intended to be making value judgements on the preferred outcome of any government decision or political election.
Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.
Small capitalization securities involve greater issuer risk than larger capitalization securities, and the markets for such securities may be more volatile and less liquid. Specifically, small capitalization companies may be subject to more volatile market movements than securities of larger, more established companies, both because the securities typically are graded in lower volume and because the issuers typically are more subject to changes in earnings and prospects.
Investments in emerging markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries.
Definitions
The Standard & Poor's 500 (S&P 500) is a market-capitalization-weighted index of the 500 largest publicly-traded companies in the U.S with each stock's weight in the index proportionate to its market. It is not an exact list of the top 500 U.S. companies by market capitalization because there are other criteria to be included in the index.
The Russell 2000 Index measures the performance of approximately 2,000 small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. The Russell 2000 serves as a benchmark for small-cap stocks in the United States.
This Standard & Poor's Midcap 400 Index is a market weighted index that serves as a barometer for the U.S. mid-cap equities sector. To be included in the index, a stock must have a total market capitalization that ranges from roughly $750 million to $3 billion dollars. Stocks in this index represent household names from all major industries including energy, technology, healthcare, financial and manufacturing.
The S&P SmallCap 600 Index, more commonly known as the S&P 600, is a stock market index from Standard & Poor's that covers the small-cap range of US stocks, using a capitalization-weighted index. The index covers roughly three percent of the total US stock market.
The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 actively traded “blue chip” stocks, primarily industrials, but includes financials and other service-oriented companies. The components, which change from time to time, represent between 15% and 20% of the market value of NYSE stocks.
The Russell 1000 Index measures the performance of the largest 1000 U.S. companies representing approximately 90% of the investable U.S. equity market.
The Nasdaq Composite Index is a market-capitalization weighted index of the more than 3,000 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks. The index includes all Nasdaq listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debentures.
The Bloomberg Barclays US Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States. Investors frequently use the index as a stand-in for measuring the performance of the US bond market.
Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices does not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.
Citations
- “A Remarkable Finish To A Remarkably Volatile Quarter”, Anothony Saglimbene, Posted 6/30/2025, Newsroom | Ameriprise Newsroom
- “A Remarkable Finish To A Remarkably Volatile Quarter”, Anothony Saglimbene, Posted 6/30/2025, Newsroom | Ameriprise Newsroom
- “Chart of the Day – Rotation Fireworks”, Bespoke Investment Group, Posted 7/1/2025, https://www.bespokepremium.com/category/chart-of-the-day/
- “S&P 500’s Historic Quarterly Rebound Pushes Index Near Record”, Jan-Patrick Barnert, Posted 6/27/2025, https://www.bloomberg.com/news/articles/2025-06-27/s-p-500-s-historic-quarterly-rebound-pushes-index-near-record?sref=YfRIauRL
- “A 2-month rally pushed the stock market to record highs - but watch for these risks in July”, Gordon Gottsegen, Posted 6/29/2025, A 2-month rally pushed the stock market to record highs - but watch for these risks in July | Morningstar
- “Total Return Review”, James Bianco, Posted 7/1/2025, https://www.biancoresearch.com/tag/monthly-reports/
- “Total Return Review”, James Bianco, Posted 7/1/2025, https://www.biancoresearch.com/tag/monthly-reports/
- “Review of markets over the second quarter of 2025”, Max Mckechnie, Posted 7/1/2025, https://am.jpmorgan.com/ch/en/asset-management/per/insights/market-insights/market-updates/monthly-market-review/
- “Total Return Review”, James Bianco, Posted 7/1/2025, https://www.biancoresearch.com/tag/monthly-reports/
- “Total Return Review”, James Bianco, Posted 7/1/2025, https://www.biancoresearch.com/tag/monthly-reports/
- “Review of markets over the second quarter of 2025”, Max Mckechnie, Posted 7/1/2025, https://am.jpmorgan.com/ch/en/asset-management/per/insights/market-insights/market-updates/monthly-market-review/
- Total Return Review”, James Bianco, Posted 7/1/2025, https://www.biancoresearch.com/tag/monthly-reports/