Stocks Complete an Impressive Rebound in Q2  

Quarterly Insights – July 2025

Market volatility spiked in the second quarter as the S&P 500 dropped sharply in early  April following the announcement of sweeping reciprocal tariffs, although those  initial losses were slowly and steadily recouped over the remainder of the quarter as  initial tariff rates were reduced while economic growth proved resilient and inflation  stayed low, allowing the S&P 500 to hit a new all-time high and finish the quarter with  a strong gain.  

The second quarter started with a proverbial thud as, on April 2^nd, President Trump  announced sweeping and substantial tariffs on virtually all U.S. trading partners. The  tariff amounts were significantly larger than markets expected and their  announcement sparked fears of a trade-war-driven economic slowdown, which hit  stocks hard as the S&P 500 dropped more than 10% in the days following the tariff  announcement. However, that low in the index on April 8^th turned out to be the low for  the quarter as the rest of April saw the administration take numerous steps to reduce  the practical impact of those announced tariffs. A week after reciprocal tariffs were  announced, the administration declared a 90-day delay where tariff rates on most  trading partners would be just 10%, far below most reciprocal tariff rates. That delay  was then followed by more steps to reduce the tariff burden, including important  exemptions for key imports such as smartphones, semiconductors, pharmaceuticals  and computers. The delay in reciprocal tariff rates and key category exemptions  gave investors some confidence that the trade war would not automatically cause a  recession, and that optimism combined with a solid first quarter earnings season to  help the S&P 500 rally throughout the remainder of April and close with just a slight  loss, down 0.68%.  

The market rebound accelerated in May as Treasury Secretary Scott Bessent  announced he would be meeting with Chinese trade officials in Geneva early in the  month. That boosted investor expectations for more tariff relief and those hopes  were fulfilled as the meeting resulted in a dramatic reduction in tariffs on Chinese  imports from 145% to approximately 30%. That tariff reduction combined with still solid economic growth further eroded investor concerns that tariffs would cause a  recession and the S&P 500 extended its rebound. Earnings also contributed to the 

rally thanks to strong results from tech bellwether Nvidia (NVDA), which reminded  investors of the growth potential of artificial intelligence (AI). Finally, in late May, the  Court of International Trade ruled the administration’s tariffs were illegal under the  law used to justify the duties. The case was appealed immediately and a decision  should come in the third quarter, but the initial ruling raised the prospect that tariffs  could be eliminated almost entirely by the courts in the coming months. That  decision further strengthened the belief that tariffs would not derail the strong  economy and the S&P 500 turned positive year to date and finished May with very  strong gains, up 6.29%.  

The rally continued in June although trade headlines, which had driven market  moves for the first two months of the quarter, took a back seat to geopolitical  concerns after Israel launched a massive attack on Iranian nuclear and military  facilities. The hostilities between the two rivals caused oil prices to temporarily spike  and that halted the rally in mid-to-late June, as investors again had to consider the  prospect of rising oil prices hurting economic growth and boosting inflation. However,  that volatility was limited, as following U.S. strikes on Iranian nuclear facilities, a  ceasefire was agreed to between Iran and Israel and oil prices dropped sharply,  turning negative for the quarter. That decline, combined with rising expectations for  rate cuts in the second half of the year, pushed the S&P 500 to new all-time highs in  the final days of June.  

In sum, the stock market completed an impressive rebound from the steep declines  of early April, as steps by the administration to ease the tariff burden helped to boost  investor confidence while corporate earnings remained strong and economic  growth proved resilient, yet again, even in the face of geopolitical uncertainty and  elevated policy volatility.  

Second Quarter Performance Review  

The gains in the S&P 500 in the second quarter were particularly impressive  considering the intense selling witnessed in early April, as the market rebound was  broad and the majority of indices, sectors and factors logged a positive return for the  quarter.  

By market capitalization, large caps outperformed small caps in Q2, as they did in  the first quarter. A lack of Fed rate cuts, generally elevated bond yields and some soft 

economic data late in the second quarter weighed on small caps, although they still  finished the quarter with a positive gain.  

From an investment style standpoint, growth massively outperformed value in the  second quarter, as tech-heavy growth funds attracted value-seeking investors  following the April declines. Tariff reductions and exemptions also boosted the  outlook for major tech firms while solid earnings from AI bellwethers Nvidia (NVDA)  and Oracle (ORCL) helped renew AI enthusiasm amongst investors. Value funds,  meanwhile, were weighed down by weakness in energy shares but still managed a  slightly positive return for the quarter.  

On a sector level, seven of the 11 S&P 500 sectors finished the second quarter with  positive returns. The best-performing sectors in the second quarter were the AI linked technology and communications services sectors as well as the industrials  sector. All three sectors benefited from tariff reductions and exemptions as many  companies in these sectors have strong international businesses.  

Turning to the sector laggards, energy and healthcare posted solidly negative  returns for the quarter, as both were pressured by negative industry-specific news.  For energy, volatility in oil prices (and a lack of a sustainable rally despite the Israel Iran conflict) weighed on energy producers, as did general fears of an economic  slowdown. For healthcare, uncertainty over pharmaceutical tariffs as well as a  legislative focus on reducing prescription drug costs weighed on healthcare stocks.  

US Equity Indexes

Q2 Return YTD 

S&P 500 11.57% 6.20% 

DJ Industrial Average 6.52% 4.55% 

NASDAQ 100 17.85% 8.35% 

S&P MidCap 400 6.92% 0.20% 

Russell 2000

7.95%

-1.78%

Source: YCharts  

Internationally, foreign markets outperformed the S&P 500 for most of the quarter,  although the late June surge in the S&P 500 saw that index pass both emerging and  foreign developed indices from a performance standpoint. Emerging markets  outperformed foreign developed markets due to substantial de-escalation in the  U.S./China trade war as well as some encouraging Chinese economic data. Foreign-

developed markets also posted strong returns for the quarter thanks to falling  interest rates and generally resilient economic growth.  

International Equity Indexes

MSCI EAFE TR USD (Foreign  

Q2 Return YTD 

_Developed) 9.77% 19.92%  

MSCI EM TR USD (Emerging Markets) 10.27% 15.57% 

MSCI ACWI Ex USA TR USD (Foreign  Dev & EM)

10.28%

18.32%

Source: YCharts  

Commodities saw slight declines in the second quarter due to weakness in oil prices,  although a continued rally in gold kept losses for most commodity indices modest.  Gold added to the already-impressive YTD returns, aided by the falling dollar (which  hit a three-year low in the second quarter) and elevated geopolitical tensions. Oil  prices, meanwhile, were volatile but ended the quarter with a modest loss as  geopolitical tensions eased following the Israel/Iran ceasefire and in response to  some lackluster U.S. economic readings in June.  

Commodity Indexes

S&P GSCI (Broad-Based  

Q2 Return YTD 

_Commodities) -1.46% 1.94%  

S&P GSCI Crude Oil -5.97% -9.48% 

GLD Gold Price

7.29%

26.02%

Source: YCharts/Koyfin.com  

Switching to fixed income markets, the leading benchmark for bonds (Bloomberg U.S.  Aggregate Bond Index) realized a modest positive return for the second quarter, as  stable inflation readings and some cooling of U.S. economic growth late in the  quarter boosted demand for bonds.  

Looking deeper into the fixed income markets, longer-duration bonds outperformed  shorter-duration bonds because of the aforementioned stable inflation data and  slightly underwhelming economic readings. Shorter-term bonds lagged as the Fed 

remained in a “wait-and-see” approach to rate cuts given the central bank wants to  wait to see the impacts from tariffs on both growth and inflation.  

Turning to the corporate bond market, both investment grade and lower quality  “high yield” bonds posted solidly positive quarterly returns. High-yield bonds  outperformed investment grade debt, however, as generally resilient economic  growth and the promise of looming tax cuts gave investors confidence to reach for  higher yield and assume more credit risk.  

US Bond Indexes

Bloomberg US Aggregate Bond  

Q2 Return YTD 

_Index1.44% 4.02%  

Bloomberg 1-3 Month U.S. Treasury  

_{Bill Index} 1.08% 2.13%  

ICE US Treasury 7-10 Year Index 1.75% 5.34% 

Bloomberg US Mortgage Backed  

_{Securities Index} 1.32% 4.23%  

Bloomberg Municipal Index 0.21% -0.35% 

Bloomberg US Corporate Index 2.04% 4.17% 

Bloomberg US Corporate High Yield  Index

3.46%

4.57%

Source: YCharts  

Third Quarter Market Outlook  

The markets begin the third quarter following an impressive first half performance, as  the S&P 500 hit a new all-time high despite much-larger-than-expected tariffs on  U.S. imports, a dramatic increase in policy volatility and more hostilities in the Middle  East.  

While investors expected tariffs and a tougher stance on trade from the new  administration, the moves taken in the first half of 2025 exceeded the vast majority of  expectations as tariffs were both higher and more far reaching than most analysts  expected. But moves by the Trump administration to ease the tariff burden  combined with the court decision invalidating reciprocal tariffs boosted market  confidence that neither the administration nor the courts would allow tariffs to derail 

economic growth. That belief helped stocks look past what is still a dramatic  increase in tariffs.  

Importantly, tariffs matter to the markets primarily because, if not properly executed,  they could cause an economic slowdown, or worse, stagflation, where growth slows  but inflation rises. Fears of a tariff-induced slowdown or return of stagflation were  contributing factors behind the April decline in stocks. Positively, economic data  remained mostly resilient throughout the second quarter and there are no major  economic indicators pointing to a material slowing of growth or a sudden rise in  inflation. That resilient data in the face of tariffs and geopolitical turmoil contributed  to the market rebound in the second quarter.  

Finally, geopolitical risks undoubtedly rose with direct conflict between Israel and Iran  (including U.S. involvement in the war) and no progress on a ceasefire on the now  three-year-long war between Russia and Ukraine. However, the market views these  conflicts as largely isolated and not at risk of spreading into a larger regional war  that could disrupt oil production or the global economy. Because of that, markets  largely ignored the increase in geopolitical tensions during the quarter.  

However, while the market was impressively resilient over the past three months, it  would be a mistake for investors to become complacent in this environment,  because there remain a lot of risks facing the economy and markets.  

First, while the market has assumed that tariffs won’t rise substantially from current  rates, there’s no guarantee of that. To that point, the deadline for the reciprocal tariff  delay is July 9^th and if that deadline is not extended, we could see tariff rates on  major trading partners surge once again. Regardless, the reality is that global tariff  rates are at multi-decade highs and it’s still uncertain how that will impact the  economy in the months ahead (so risks of a tariff-induced slowdown or rise of  stagflation can’t be dismissed).  

Turning to geopolitics, while the various conflicts have not negatively impacted  global markets, risks remain elevated. If Iran takes steps to disrupt global oil  production or transit, that will boost oil prices and create a new headwind on  markets. Similarly, if these isolated conflicts begin to spread into larger regional  conflicts that will also lift oil prices and weigh on stocks and bonds.  

Finally, investors still expect two interest rate cuts from the Federal Reserve between  now and year-end; however, the unknown impact from tariffs on economic growth 

and inflation make rate cuts in 2025 far from certain. If the Federal Reserve does not  cut rates in the coming months, that will increase concerns about an eventual  economic slowdown and that could weigh on markets.  

Bottom line, markets have been impressively resilient so far this year, but as we start  the second half of 2025 there remain numerous, potentially significant risks to the  markets and the economy and we will not let the market’s resilience create a sense  of complacency.  

To that point, at Trubee Wealth Advisors, we are committed to helping you effectively  navigate this investment environment. Successful investing is a marathon, not a  sprint, and even intense volatility is unlikely to alter a diversified approach set up to  meet your long-term investment goals.  

Therefore, it’s critical for you to stay invested, remain patient, and stick to the plan, as  we’ve worked with you to establish a unique, personal allocation target based on  your financial position, risk tolerance, and investment timeline.  

We remain focused on both opportunities and risks in the markets, and we thank you  for your ongoing confidence and trust. Please rest assured that our entire team will  remain dedicated to helping you successfully navigate this market environment.  

Please do not hesitate to contact us with any questions, comments, or to schedule a  portfolio review.