The second quarter of 2025 was a rollercoaster. Stocks dropped fast in April after new tariff threats, only to rebound just as quickly. By the end of June, markets had not only recovered, they had hit new highs.
What looked like the start of a downturn turned into one of the strongest 13-week stretches in market history.
Tariff Shock, Quick Recovery
In early April, the White House announced broad tariffs on imports. The news surprised investors and sent markets into a sharp slide. But just a week later, most of the tariffs were paused. Stocks bounced back immediately.
By late July, the S&P 500 was up 27% from its low. It also gained 17% from the day the tariffs were first announced.
Markets Learn from History
Geopolitical shocks—like tariffs or conflicts—tend to cause short-term dips. But they rarely lead to long-term damage. Historically, markets are up 5% six months after these events and 8% after a year. This time, the rebound came even faster.
The Economy Still Looks Solid
Even with inflation concerns, the U.S. economy is showing strength. Retail sales are up. Big banks posted strong earnings. The labor market added 147,000 jobs in June. Inflation rose slightly to 2.7%, but had been falling for five months before that.
Overall, consumers still appear steady and markets seem to believe the tariff threats are more talk than action.
Big Spending on AI
AI remains a major theme. Big Tech firms like Google, Meta, Amazon, and Microsoft are expected to spend over $300 billion on AI this year. For perspective, the U.S. spent the inflation-adjusted equivalent of $4.1 trillion to fight World War II.
There’s debate about whether this investment will pay off, but it’s clear that AI is reshaping how businesses operate. We’re watching it closely.
International Stocks Gaining Ground
For the first time in years, global stocks are starting to outperform. The All-Country World ex-U.S. Index rose 18.3% through Q2. A big part of that gain came from a weaker U.S. dollar, which helps overseas investments.
While this could signal a bigger shift, we’re being patient. Global valuations have looked attractive for a while, but lasting outperformance takes more than just one strong quarter.
Bond Market Reaction
Bond yields also moved sharply in April. The 10-year Treasury jumped from 4.0% to 4.5% within a week, likely in response to the tariff headlines. That spike may have helped pressure the White House to hit pause.
Despite the swings, bonds held up. The Bloomberg U.S. Aggregate Bond Index returned 1.2% for the quarter and 4.0% for the year through June.
New Tax Law Changes
The One Big Beautiful Bill Act (OBBBA) passed this quarter and included two key changes:
- SALT Deduction: The cap rose from $10,000 to $40,000, with phaseouts starting at $500,000 of joint income.
- Senior Deduction: A new $6,000 deduction is available for taxpayers over 65. It phases out at $250,000 for joint filers.
These changes could create new planning opportunities, especially for clients in high-tax states.
What Comes Next
Q2 was a reminder of how quickly markets can shift. Volatility may return, but that’s part of investing. What matters is having a plan and adjusting it when the world changes.
We’re keeping a close eye on markets, policy changes, and new opportunities. If you want to revisit your plan or talk through next steps, we’re here to help.