5 min read
Performance
Global equity markets weathered a turbulent but ultimately positive second quarter, shaped by shifting trade policies, geopolitical tensions, and evolving monetary policy expectations for the Federal Reserve. Much of the volatility stemmed from tariff-related developments, which triggered sharp swings before markets stabilized as most proposed duties were put on hold. International equities outperformed their U.S. counterparts, buoyed by a weaker U.S. dollar. Bonds posted positive returns (with shorter-duration bonds edging out longer-duration and municipal bonds). Oil prices surged late in the quarter amid escalating tensions in the Middle East, then reversed swiftly after a ceasefire between Israel and Iran eased supply concerns. As markets recalibrated expectations around the Fed’s policy direction, the quarter served as a reminder of a core principle: staying the course with a diversified, long-term approach can help investors navigate uncertainty more effectively.
Stocks
U.S. stocks (Russell 3000 Index) fell sharply at the start of the second quarter following the Trump administration’s sweeping tariff announcement, but rebounded after a partial rollback of those measures was introduced. Equity markets regained earlier losses and ended the quarter with robust returns. The Russell 3000 delivered a gain of more than 25% from the quarter’s low on April 8 to its close. The theme of market concentration persisted as a handful of large technology stocks played a leading role in driving the market’s impressive rebound. The quarter saw a sharply bifurcated equity market, with large-sized stocks (S&P 500) outperforming mid-sized (S&P MidCap 400) and small-sized (S&P SmallCap 600) companies, which were weighed down by tighter financial conditions and less exposure to global growth drivers.
While market capitalization (the total value of a company’s outstanding shares of stock) is a key lens through which investors view equity performance, it is just one of many systematic drivers of return, commonly referred to as a “factor.” Factors represent broad, persistent sources of risk and return that are grounded in economic theory and observed across markets and time. During the second quarter, factor performance was notably dispersed. Momentum led performance, highlighting investors’ preference for recently strong-performing stocks. Growth stocks also advanced as capital flowed into companies with above-average earnings potential. In contrast, quality and value stocks lagged, as those with stable profits and lower valuations lost favor.
Source: Planning Alternatives
International stocks (MSCI All Country World Index ex-U.S.) outperformed U.S. stocks (Russell 3000) for a second consecutive quarter, albeit by a narrower margin. The outperformance was largely attributed to continued weakness in the U.S. dollar, which has declined more than 10% since the start of 2025. The dollar’s slide has provided a tailwind for non-U.S. assets from the perspective of U.S. investors. Emerging market stocks (MSCI EM) slightly outperformed developed market stocks (MSCI EAFE).
Bonds
Bonds (Bloomberg US Aggregate Bond Index) finished the second quarter higher as inflation expectations moderated and more clarity on monetary policy emerged. The Fed held rates steady throughout the quarter but signaled growing openness to cuts later in the year, which raised shorter-duration bond prices (Bloomberg US Government/Credit 1-5 Year Index) the most. Municipal bonds (Bloomberg Municipal Bond 1-10 Year Blend Index) lagged slightly, weighed down by seasonal technicals — market patterns that typically emerge during certain times of the year, such as increased bond supply from municipalities issuing debt in the summer and reduced reinvestment demand following the April tax season.
Alternatives
Alternative assets posted mixed results in the second quarter, shaped largely by commodity volatility and shifting geopolitical dynamics. Commodities (Bloomberg Commodity Index) surged in early June as oil prices spiked following Israeli strikes on Iran, raising fears of broader regional conflict. Those gains were short-lived, however, as oil prices pulled back significantly in late June after a ceasefire agreement between Israel and Iran eased supply concerns and reduced geopolitical risk premiums. Natural resources stocks (S&P Global Natural Resources) rallied in the first half of June, before retreating slightly toward the end of the quarter, but still managed to finish positively. Global real estate (S&P Global REIT Index) has continued its gradual recovery since its October 2023 low, supported by steady income yields and easing interest rate expectations. As a result, the overall performance of alternative assets was muted, with early commodity strength offset by late-quarter reversals.
Source: Planning Alternatives
Source: Planning Alternatives
Perspective
“History doesn’t repeat itself, but it often rhymes.”– Mark Twain
The second quarter of 2025 reminded investors that markets are rarely linear. Volatility, while uncomfortable, is a natural part of the investing journey. From tariff shocks to geopolitical flare-ups, and from shifting Federal Reserve signals to a weakening U.S. dollar, the quarter was a case study in how quickly sentiment can shift and how important it is to remain rooted in a disciplined, well-constructed investment strategy.
April opened with a jolt: the Trump administration’s sweeping tariff announcement rattled markets, sending equities sharply lower and igniting fears of a global trade war. But in a dramatic reversal just days later, a partial rollback of the tariffs sparked one of the strongest single-day rallies in years, with the Nasdaq Composite Index surging more than 12% on April 9. This whiplash underscored a key theme of the quarter: markets are increasingly reactive to policy headlines, and investors must be prepared for abrupt, sentiment-driven moves. While holding interest rates steady, the Federal Reserve expressed a willingness to lower them before year’s end. The Fed’s evolving policy stance will remain a key driver of asset class performance in the second half of the year. Meanwhile, Middle East tensions highlighted the fragility of markets and the importance of geopolitical awareness in portfolio construction.
Looking ahead, the investment landscape remains complex. The U.S. dollar’s sharp year-to-date decline has boosted international equity returns, particularly in emerging markets. But there are questions about the sustainability of this trend, especially if the Fed begins cutting rates. Investors are also contending with a highly concentrated U.S. equity market, where a handful of mega-cap tech stocks continue to drive returns. While this concentration in stock leadership has been rewarding, it also raises questions about diversification and the potential risks of overexposure to a narrow slice of the market.
The volatility experienced in the second quarter echoes past periods of policy uncertainty and geopolitical tension. As is often the case, those who remained disciplined and diversified were rewarded for their patience. Maintaining a balanced approach across asset classes, geographies, and investment styles can continue to be a prudent way to navigate an evolving market environment.
Positioning
Our portfolio positioning has remained consistent with the adjustments made in the first quarter. We continue to maintain a neutral stock allocation relative to benchmark weighting. This is not a market-timing call, but rather a reflection of our belief that, in the absence of a dominant economic narrative, a balanced approach can represent a thoughtful and measured course of action. The economy remains resilient, inflation is moderating, and the Fed has signaled a potential pivot toward easing later this year. At the same time, risks from geopolitical tensions and potential lagging effects of tighter monetary policy remain. A neutral stance allows us to participate in market upside while remaining prepared for volatility.
Beneath the surface, we maintain the flexibility to express our investment views through asset class and sub-asset class tilts when our data indicates a compelling opportunity to do so. Our U.S. to international equity mix remains at 80% U.S. / 20% international, reflecting a modest preference for domestic markets while still capturing the diversification benefits of global exposure. Our U.S. equity sleeve includes a momentum-focused ETF, which has been additive during this period of concentrated leadership in large-cap technology stocks. This complements our long-standing dividend-focused strategy and diversified exposure across small-, mid-, and large-cap equities. We also maintain our ex-China emerging markets exposure in our international equity sleeve.
Throughout the quarter, we held firm to our core investment principles and did not make any reactionary moves. Instead, we focused on long-term fundamentals and the alignment of each client’s portfolio with their unique financial plan. This approach, which is grounded in evidence, not emotion, allowed us to weather volatility and remain well-positioned for future opportunities.
As always, we monitor markets closely and stand ready if systemic market changes warrant any carefully considered portfolio adjustments. But our deeply held belief in the power of strategic asset allocation, global diversification, and long-term investing principles remains unwavering. These are the tools that help us navigate uncertainty and pursue True Wealth.
