Q2 2025 Review & Outlook

Tariff Reduction and Solid Growth. Power an Impressive Market Rebound in Q2

Market volatility spiked in Q2 as the S&P 500 fell sharply in early April following the announcement of sweeping reciprocal tariffs. However, those initial losses were gradually reversed over the quarter as tariff rates were reduced, economic growth remained resilient, and inflation stayed low.¹

The quarter began on a negative note when President Trump announced significant tariffs on nearly all U.S. trading partners on April 2. The tariffs were more extensive and higher than expected, triggering a sharp sell-off in equities. Within a week, however, the administration introduced several tariff mitigation measures, including a 90-day delay on implementation and a cap on tariff rates at 10% instead of full reciprocal levels. Additionally, key exemptions were announced for smartphones, semiconductors, pharmaceuticals, and computers.² These adjustments eased investor concerns and helped markets stabilize and begin their recovery.

Momentum picked up in May after Treasury Secretary Scott Bessent announced a meeting with Chinese trade officials in Geneva. The meetings resulted in significant tariff reductions, with tariffs on Chinese imports lowered from 145% to approximately 30%, providing substantial relief to businesses and investors. Later in the month, the Court of International Trade ruled that the tariffs were illegal under the statute that authorized them. The administration immediately appealed the decision, but the ruling added to the positive sentiment around potential tariff rollbacks.³ These developments fueled continued market gains throughout May.

The rally continued in June, although the market's focus shifted from trade policy to geopolitics after Israel launched attacks on Iranian nuclear and military targets, causing oil prices to spike temporarily. However, a swift ceasefire was reached, and oil prices fell sharply, alleviating concerns about sustained energy price increases. Meanwhile, expectations grew that the Federal Reserve would cut interest rates in the second half of the year. This optimism, combined with the tariff progress made earlier in the quarter, pushed the S&P 500 to fresh record levels by the end of June.⁴

Risks to Monitor

While the second quarter ended on a positive note, several risks remain on the horizon that could impact markets in the second half of 2025:

1. Tariffs

Despite the reductions made during Q2, global tariff rates remain at multi-decade highs, and their full economic impact is still uncertain. There remains a risk that trade tensions could reignite, leading to a trade-war-induced economic slowdown or even stagflation if inflation accelerates alongside slowing growth.

2. Geopolitics

Middle East tensions remain elevated despite the ceasefire reached in June. Any disruption to oil production could reignite concerns about both economic growth and inflation. A broader regional conflict could pose significant risks to global markets.

3. Monetary Policy

Markets are currently pricing in two Federal Reserve rate cuts before year-end.⁶ However, the impact of tariffs on both inflation and growth creates uncertainty around the Fed's path forward. If rates remain unchanged, it could signal either persistent inflation concerns or reduced flexibility to respond to future economic weakness.

We remain vigilant to potential risks that may impact both the economy and your portfolio, and appreciate your continued confidence. Our entire team remains dedicated to helping you navigate this market environment and keeping your financial plan on track.⁵

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