Summer 2025 
^{Volume 33 | No. 3}

Market QuickTakes Q2 | 2025

Volatility, Recovery & Resilience

The second quarter of 2025 was one of the most volatile periods in market history, marked by extreme swings in sentiment driven by tariff policy shocks, inflation concerns, and economic uncertainty. It tested the resolve of even the most seasoned investors—requiring discipline, patience, and long-term perspective to weather the storm.

Markets entered Q2 under duress. President Trump’s surprise "Liberation Day" tariff announcement on April 2 triggered a swift and severe selloff, sending major U.S. stock indexes into bear market territory from 2025 highs. International markets were also severely impacted by the trade war escalation. The selloff reached its nadir within days, as recession probabilities soared to 50–60% and inflation expectations spiked to levels not seen since 2022. Then came an extraordinary reversal.

On April 9, following a sharp overnight spike in interest rates and bond market backlash, the administration announced a 90-day reciprocal tariff pause, calming markets almost instantly. U.S. stocks staged one of the sharpest single-day rallies in history, with 8–12% gains across major U.S. indexes. That single session accounted for over 80% of April’s total recovery, and by month-end, most indexes had recouped their losses, closing April in positive territory. International markets recovered sharply as well.

Momentum from the April 9 tariff pause rally carried through May and June, propelling the S&P 500 and Nasdaq to new all-time highs by quarter-end.

Key Q2 Highlights:

• Inflation and Recession Fears Spike, Then Ease
  Recession risks surged to 50–60%, while inflation expectations spiked to post-2022 highs—both calming somewhat after the tariff pause. The Fed, though holding rates steady, acknowledged elevated uncertainty, slowing growth, and rising price pressures.
  
  
• One of the Fastest Market Recoveries in Modern History
  The tech-heavy Nasdaq, after a sharp 23.9% drawdown, closed Q2 up 5.5%, while the S&P 500, down 18.9% at its low, also finished the quarter up 10.6%—both ending the First Half at record levels. Whether measured by the Dow, S&P 500, or Nasdaq, the market recovery has been one of the fastest on record in modern history.

• Timing the Market: A Risky Game
  Missing just one key day—April 9—meant missing a massive portion of the recovery. That single session delivered 8–12% gains across major U.S. indexes. By the end of April, it represented over 80% of the recovery gains. By quarter-end, more than one-third of total recovery gains had still come from that day alone.
  
  
• Labor Market Holds Steady
  Jobs data remained solid, with unemployment steady at 4.2% in May. Inflation reports (CPI and PPI) came in better than expected, supporting the market's bullish rebound, as recession risks eased, though remain elevated.
  
  
• Strong Returns for Diversified and Resilient Investors
  Despite volatility, Q2 delivered robust returns:
  Nasdaq: +17.8% Q2 gain; closed Q2 +5.5% YTD
  S&P 500: +10.6% in Q2; closed Q2 +5.5% YTD
  MSCI EAFE (Developed Intl.): +10.9% in Q2; +17.4% YTD
  MSCI EM (Emerging Mkts): +11.0% in Q2; +13.7% YTD
  US Dollar Index: Fell 10.7% in the First Half, boosting foreign returns
  Bloomberg Aggregate Bond Index: +1.6% in Q2; +4.0% YTD
  
  
• Interest Rates Volatile, But Anchored
  The 10-year Treasury yield closed Q2 at 4.24%, nearly flat, despite hitting a high of 4.59%. Long-term rates rose more meaningfully—30-year Treasury yields climbed 19 bps to 4.78%, reflecting debt concerns tied to proposed fiscal policy.
  
  
• Geopolitical and Fiscal Pressures Rising
  The Israel-Iran conflict added to market jitters, particularly in energy prices. Meanwhile, the prospect of the “One Big Beautiful Bill” (OBBB) raised fresh fiscal questions, with projections suggesting it may add $3–$5 trillion to the national debt over a decade (JPMorgan).

July Market Update: New Highs and Cautious Optimism

• Ongoing Rally
  July has seen continued momentum, with the S&P 500 and Nasdaq posting additional gains of 2.6% and 3.0%, respectively, setting multiple all-time highs. The 90-day tariff pause announced on April 9, was extended to August 1, 2025.
  
  
• Global Equities Mixed
  Developed international markets have moderated slightly after strong First Half performance, though MSCI EAFE has also posted new highs. Emerging Markets continue to show strength amid a weaker dollar.
  
  
• Fiscal Stimulus and Bond Market Reaction
  President Trump’s OBBB Act was signed into law on July 4. While expanding tax cuts and fiscal stimulus, the projected long-term debt impact has unnerved bond markets, pressuring yields higher, especially on the long end of the curve. The Fed meets again July 29-30 and is expected to leave interest rates unchanged.

The Outlook: Volatility Remains the Constant

While the market’s resilience and speed of recovery have been encouraging, uncertainty remains elevated. Tariff policy, inflation dynamics, and geopolitical instability all suggest the potential for continued turbulence.

Investors are reminded that:

Missing even one key day can have long-term consequences. Staying invested, diversified, and disciplined is essential in volatile markets.

We continue to monitor developments closely and urge a balanced approach—remaining invested while prepared for near-term choppiness.

Full Q2 Market Commentary click here. 

Capital Group: "Given the uncertain environment, investors may have doubts about their investment approach. It’s natural to seek calmer shores when markets are choppy. But it’s equally important to step back, gain perspective and look toward the horizon.

History shows the stock market has always recovered from previous declines, though there’s no guarantee downturns will lead to rebounds. Here are five insights that can help you regain confidence and stay invested for the long haul."

• When in doubt, zoom out
• Markets typically have recovered quickly
• Bear markets have been relatively short-lived
• Bonds can offer balance when it is needed most
• Staying the course has paid off for long-term investors

Get all the details, charts, insights in Capital Group's Guide to Market Volatility below.

Past Performance is No Guarantee for Future Success

JPMorgan: Eight time-tested strategies for guiding investors through today’s challenges and toward tomorrow’s goals:

• Plan on Living a Long Time
• Cash isn't always king
• Compounding makes a difference over time
• Avoid emotional biases and stick to a plan
  and avoid the urge to time the market
• Volatility is a normal part of being an investor
• Staying invested matters and helps to smooth out the investment ride
• Investing efficiently has its advantages
• Diversification works and it is a winning strategy over the long run

This detailed JPMorgan piece provides valuable insight into market volatility and how to stay focused for successful long-term investing.

Past Performance is No Guarantee for Future Success

MFS Funds: "In 1924, MFS® launched the US’ first mutual fund, bringing a diversified, professionally managed portfolio, formerly the privilege of the wealthy, to ordinary people. Since then, MFS has invested through 25 bear markets, 24 bull markets, 17 recessions, multiple market bubbles and many wars."*

We’ve learned many lessons along the way:

• Fundamentals matter
• Time is an investor’s greatest asset
• Diversification works
• Balance opportunity and risk
• Disruption is constant
• Teams over individuals

^{*As 12/31/24}

Gain valuable insights from MFS'  Lessons Learned from 100 Years of Investing below.

Past Performance is No Guarantee for Future Success