Fastest Comeback Ever
The second quarter of 2025 was a wild one. After peaking on February 19, markets began to slide because of trade policy fears. That decline accelerated into a nearly 20% correction following the April 2 "Liberation Day" tariff announcements. The sell-off was so sharp, in fact, that two of the worst 100 days in stock market history occurred in the two days post-announcement. The Trump administration's decision to delay tariff implementation played a big role in the market rebound, as evidenced by the nearly 10 percentage point bounce on April 9, which was one of the 100 best days in stock market history. The de-escalation of trade tensions fueled a powerful, sentiment-driven recovery that lasted through June. The rally culminated in the S&P 500 setting a new all-time high, closing at 6,204.95 on June 30, an unthinkable accomplishment given where markets were at the start of the quarter. To put it in perspective, the index rallied 24.5% from the April 8 bottom through quarter-end. In the history of corrections of at least 15%, that is the fastest rebound on record.S&P 500 Year-to-Date
What Giveth Can Taketh Away
While stocks sit at all-time highs, the foundation of the recent rally is fragile. The factor that drove the sharp decline — acute fear over the future of U.S. trade policy — also enabled the powerful rebound once the immediate fear was postponed. This dynamic, however, can work in reverse. The core risk hasn’t been eliminated, just delayed, and time is ticking on the tariff reprieves. As those pauses end and tariffs get implemented (or not), the same policy risks that previously roiled markets could be reintroduced. Historically, periods of high economic policy uncertainty are better for forward returns but worse for trailing returns. (The reverse is generally true for periods of low uncertainty).Economic Policy Uncertainty Affects Stock Returns
In other words, it’s not that high uncertainty itself boosts returns, but that transitioning from higher to lower uncertainty enables investors to price out worst-case scenarios (which usually boosts returns). That only can happen if uncertainty dissipates, but that’s an open question.
Risks are compounded by stretched valuations, with the S&P 500's forward price-to-earnings ratio near cycle highs, and a deteriorating earnings outlook. Ultimately, policy uncertainty continues to drive market volatility, and it doesn’t look like it’s going anywhere for now.
Market Recap
Asset Returns
June 2025 Sector Total Returns
Macro
• The Federal Reserve left its benchmark interest rate unchanged at a target range of 4.25%-4.50%.
• The Fed’s Summary of Economic Projections were revised to show lower growth, higher unemployment, and higher inflation this year and next.
• May CPI (+0.1% m/m) and PPI (+0.1% m/m) both came in below expectations, the fourth such month in a row.
• Housing starts plunged to 1.256m in May (-9.8% m/m), the lowest level in five years.
• Continuing jobless claims rose to 1.974m as of mid-June, the highest since November 2021.
• Against expectations for a m/m increase of 0.3%, personal income declined 0.4% in May, the first decline since September 2021.
• Q1 GDP growth was revised down from -0.2% to -0.5%, driven by lower consumer spending.
• Fears of a potential disruption to oil supply in response to the conflict between Israel and Iran led to oil prices surging as much as 23.6%, before ending the month up 7.1%.
Equities
• The S&P 500 closed at a record high of 6,205 on June 30, eclipsing its prior all-time high set on February 19.
• The S&P 500 forward 12-month price/earnings ratio rose from 21.4x to 22.1x, representing multiple expansion of 3.5%, while forward EPS estimates rose 1.4% from $277 to $280.
• Growth stocks beat value stocks by 2.8 percentage points, the third straight month of outperformance.
• Defensive sectors handedly outperformed cyclicals and technology-exposed parts of the market.
Fixed Income
• 2- and 10-year Treasury yields fell 18 and 17 basis points, respectively, as weakening economic data boosted interest rate cut expectations for later in the year.
• Investment Grade and High Yield corporate bond spreads narrowed by 5 and 24 basis points, respectively.
Performance data quoted represents past performance. Past performance does not guarantee future results. Market returns will fluctuate, and current performance may be lower or higher than the standardized performance data quoted.