From Crisis to Clarity in a Volatile Quarter

The second quarter of 2025 was defined by dramatic market reversals in global markets. At first, investors were worried about new trade tariffs and geopolitical tensions, which caused a sharp drop in share prices. But as the quarter went on, attention shifted to economic data and signals from central banks that interest rates might stay lower for longer. After the initial shocks—including the “Liberation Day” tariff announcement and unrest in the Middle East—markets steadied and began to focus on the bigger picture.

U.S. Markets Recover from Sharp Declines

U.S. equities demonstrated remarkable resilience, recovering from April's 12% drop following unexpected trade tariffs announced on Liberation Day. While the initial reaction was sharp, hints from the U.S. central bank that interest rates may stay lower for longer helped support markets. By the end of the quarter, the S&P 500 had posted modest gains—highlighting the market's ability to adapt to policy uncertainty while focusing on earnings strength and monetary policy direction.

Global Markets Show Divergent Performance

• Emerging markets outperformed significantly, gaining 4% gains in June alone as risk appetite returned after Middle East tensions eased.

• European and UK markets experienced similar volatility to the U.S. but also recovered as trade talk softened.

• Australian equities showed steady performance, supported by rate cuts from the Reserve Bank of Australia and moderating domestic inflation.

• Chinese markets benefited from government support, even as industrial output and retail sales remained weak.

The divergence reinforced how different regions are responding to changes in global trade and central bank decisions about interest rates.

Two Major Shocks Quickly Absorbed

The quarter was marked by two significant shocks that tested market resilience:

• Liberation Day Tariff Shock when new trade tariffs were unexpectedly announced by the Trump administration, causing a sharp market reaction and a 12% weekly decline in the S&P 500.

• Middle East Tensions in June, when military actions targeting Iran’s nuclear facilities briefly unsettled global markets and sent oil prices surging over 20%. However, Iran’s measured response and quick diplomatic efforts helped ease tensions, and markets soon recovered.

Both events showed that while news headlines can cause short-term volatility, markets often bounce back as the bigger picture comes into focus.

What This Means for Portfolios

The second quarter proved that temporary market swings are a normal part of investing. Markets remain anchored by economic fundamentals and central bank decisions.  The market is learning not to overreact to every piece of political news as investors are paying more attention to how companies are actually doing rather than getting spooked by policy changes. The portfolios remain positioned to navigate this environment, with continued focus on companies and regions best placed to benefit from evolving monetary policy and economic conditions as we head into Q3 earnings season and key policy decisions.