Happy July! Can’t believe we are half way through the year! The markets have been anything but stable this year. Incredibly enough, the stock market (represented by the S&P500) registered an all-time high to finish the second quarter of 2025. And that’s after bouncing off mid-April lows when the S&P 500 was off 19% from its all-time high, just a hair away from bear market territory. Fixed Income markets played nice this quarter and liquid alternatives, in general, continued to shine. This quarter has seen a lot including some of these highlights/lowlights:
- Trump’s “Liberation Day” in which he announced sweeping reciprocal tariffs on countries around the globe, including “our friends” like Canada and Mexico.
- AI rockiness from Chinese upstart DeepSeek sending last year’s stock market darling, Nvidia, into a temporary freefall only to bounce back.
- Inflation trending lower – which is great! – last print in May was 2.4% year-over-year. Rent and auto insurance continues to come down, but we expect to see core goods prices rising due to tariffs so we wouldn’t be surprised to see overall inflation tick back north of 3% by year-end.
- Both the NASDAQ and Russell 2000 (small cap) falling into bear market territory (over 20% down from its most recent high), yet bouncing back strongly with the NASDAQ now in positive territory for the year and the R2000 only down slightly year-to-date (“YTD”).
- The S&P500 barely avoiding bear market territory, falling 19%; only to reverse course and finish up over 6% YTD.
- The Magnificent 7 not all being “magnificent” anymore with Apple and Tesla down significantly YTD, 18% and 21% respectively.
- Crypto climbing back above $100K with many politicians on both sides of the aisle wanting to advance legislation to integrate crypto into the mainstream financial system.
- The Big Beautiful Bill working its way through Congress. It recently cleared the Senate but awaits either a final House approval or a conference reconciliation before heading to the President’s desk.
Before diving into what lies ahead in this volatile world, let’s take a look first at how the major asset classes have fared in 2Q25 and YTD, and then talk about what’s next.
Equities: International (as shown above up 12.0% QTD & now 17.9% YTD) remains the standout performer so far this year. Certainly the 11% slide in the US dollar is a factor in that but even in local returns international has fared well. With steep US tariffs making American imports more expensive, global buyers and sellers have rerouted trade flows through Europe, Asia, and Latin America, boosting growth and profits abroad. In domestic markets, per above, US equities started weak only to bounce back and finish at or near all-time highs. Why? An unexpected 90-day pause announcement from Trump, better-than-expected Q1 earnings from big name companies, and the Fed shifting slightly dovish.
Fixed income: 2Q25 was a strong quarter for bonds overall, especially short/intermediate‑duration and corporate credit. Long-term bonds faced pressure and saw capital outflows—but Treasuries rallied on disinflation and dovish Fed sentiment. The tug‑of‑war between tariff uncertainty, fiscal deficits, and rate speculation defined the quarter’s fixed-income landscape. The US Aggregate Bond Index was up 1.2% for 2Q25 and up 4.0% on the year.
Alternatives: The basket of liquid alternatives that we follow was up handsomely for 2Q25, following an impressive first quarter. Our significant holding in gold (up 5.9% in 2Q25 & now up over 26% YTD) has powered the way. Other winners include hedged strategies like the Calamos Long/Short Fund, up 8.9% for 2Q25 & now up 9.9% YTD! Managed futures were one of the only alternative areas that we follow to finish in the red this latest quarter. That being said, liquid alts have been a great diversifier and return enhancement for many diversified portfolios.
Put it all together and it’s been a solid quarter and 1H25 for investors like DWM’s whose portfolios are managed in a diversified manner. Now, let’s look toward the future.
On the economy, the 2Q25 GDP print will come out soon and it will look “good” – probably 3.0%+ – given the manner it is calculated. However, the labor market appears to be softening, with hires down in May. Price increases because of tariffs should start showing up very soon. That said, we do not see the Fed cutting rates in July and we wouldn’t be surprised to see them continue their “wait-and-see” approach through the rest of the year.
On the stock market, near record high stock valuations – see above – will make it challenging for the market to soar higher and may restraint the Fed from cutting rates. For the last couple months, the market has just shrugged off all the potentially bad news. But an extreme amount of uncertainty still remains. For example, July 9 is Trump’s self-imposed deadline day on other countries to negotiate tariffs. Caution is warranted. At DWM, we have put some guard rails in place in the event of a major large cap correction. We are cautiously optimistic for a stock market that continues to grind higher, but risk management is prudent in this type of environment. Diversification with multiple assets classes (fixed income, alternatives, etc) and diversification within specific asset classes – e.g. make sure you have adequate international equity exposure to complement your domestic equity exposure – can really help protect.
In conclusion, it’s been an amazing start to a year that was witnessed amongst so much turmoil and uncertainty. But that uncertainty persists. This is not a time to let your guard down. If you’re not yet working with a wealth manager like DWM to help you protect in uncertain times like these, give us a call and we’d be happy to help.