Market volatility spiked in the second quarter as the S&P 500 dropped sharply in early April following the announcement of sweeping reciprocal tariffs. However, those losses were slowly and steadily recouped over the remainder of the quarter as initial tariff rates were reduced, and while economic growth proved resilient and inflation remained low, allowing US equities to hit new all-time highs and finish the quarter with strong gains. The Vanguard Total Stock Index rose +10.9% for the quarter, now +5.6% year-to-date (‘VTI’ ETF Proxy).

The second quarter started with a proverbial thud as President Trump announced sweeping tariffs on virtually all US 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 taking the S&P 500 down into bear-market territory with intraday drawdowns exceeding -20% off February all-time highs. However, the low in the index on April 8th turned out to be the low for the quarter as the rest of April saw the administration take numerous steps to reduce or delay the practical impact of those announced tariffs. Improved earnings visibility and renewed AI enthusiasm further buoyed investor sentiment. S&P earnings grew +12.8% y/y in Q1 (Factset, “S&P 500 Earnings Update,” 5/2/25), well above projections, with margin resilience, buybacks, and consumer interest providing additional support.

Meanwhile, macro dynamics offered mixed signals. Core CPI readings softened throughout the quarter, reinforcing disinflation themes as the US Dollar posted its largest quarterly drop since late-2022, unwinding a crowded “US exceptionalism” trade. Oil, in particular, fell nearly -9% despite dramatic Middle East tensions including a US raid on Iran, as weighed down by OPEC production raises and trade growth worries.

In sum, Q2’s market gains were powered by AI strength, resilient earnings, soft inflation data, and strategic positioning tailwinds after an official bear market. The quarter certainly underscored the importance of vigilance to all possibilities. Elevated valuations, geopolitical tensions, unresolved trade frictions, and a volatile policy environment still require vigilance into the second half of the year. Accordingly, we will continue to monitor markets closely to best manage these emerging risk-reward opportunities.

Source: Index proxies based on dividend adjusted ETF time-series data from CSI Data, Inc. Data considered dependable, but not guaranteed. Past performance is no guarantee of future performance or profitability. Statements herein do not constitute individual investment advice – please speak with your advisor about your particular situation.