The second quarter of 2025 proved to be one of the more dynamic periods in recent financial history. Driven by a series of geopolitical shocks, macroeconomic shifts, and monetary policy divergence, global markets swung sharply in April before recovering with vigour through May and June. Equity markets rebounded strongly, yields softened in many regions, and the dollar weakened, driving a broad-based recovery in risk assets. Overall, global equities closed Q2 up 2.0%, in euro terms, while global bonds gain 1.0%
April began with a jolt to markets as President Trump enacted a new round of trade tariffs, targeting key imports from across the globe. The so-called “Liberation Day” tariffs saw the introduction of a sweeping 10% base levy, with some sectors and regions, hit by far greater duties. Equity markets sold off sharply, with the S&P 500 losing 14%, in EUR, through the first few weeks of the quarter. Other global indices also declined. Yields on U.S. 10-year Treasuries rose 50 basis points as inflation and growth concerns flared. However, swift policy recalibration followed, with the White House pausing enforcement of a large portion of Trump’s previously announced tariffs and initiating trade negotiations, leading to a fast rebound in sentiment.
In the U.S., the S&P 500 (above in green) recouped all its April losses, closing the quarter up 1.6%, in EUR, led by the region’s technology index, the Nasdaq (in pink), which closed the quarter up 8.2%. The “Magnificent 7” mega-cap tech names once again delivered outsized returns, benefitting from ongoing optimism around artificial intelligence and resilient earnings.
For ex-US investors, however, a weakening of the dollar weighed on the region’s equity market returns, with currency movements muting the full extent of the rebound.
Outside the U.S., the recovery in equity markets was also evident, with easing trade tensions and improving macro-economic data prints helping support performance from Japan, Asia and emerging markets. For Euro investors, however, currency movement again took a significant toll on translated returns, with a strengthening of the Euro against almost every other major currency (illustrated on the chart below) detracting from performance.
Across Europe and the UK, again, markets rebounded, albeit full quarter returns were close to flat. In the UK, the FTSE 100’s elevated exposure to energy and healthcare stocks detracted, with geopolitical machinations and changes to U.S. funding policies causing the two sectors to be the only negative performing sectors, at a global level, through the quarter.
As with the equity market, the bond market was volatile in April but settled through May and June. U.S. 10-year Treasury yields ranged between 4.2% and 4.6%, ultimately declining towards the lower bound as markets priced in a more dovish outlook from the Federal Reserve. In Europe, bonds rallied further as the European Central Bank (ECB) and Bank of England (BoE) cut rates. The BoE reduced its deposit rate to 4.25%, while the ECB enacted two rate cuts in April and June, bringing the deposit rate down to 2.0%, with ECB President Lagarde indicating that the central bank is nearing the end of its rate cutting cycle.
At a global level, corporate bonds (in orange, above) outperformed their government counterparts, as corporate fundamentals continued to show resilience. Despite selling off sharply coming into the quarter, a retracement of credit spreads led the global high yield index (in light blue) to rebound particularly strongly, closing June up 2.9%.
Within commodity markets, energy prices were choppy amid geopolitical uncertainty in the Middle East, notably tensions between Israel and Iran. Oil prices fluctuated but ended the quarter lower as supply remained ample. Gold benefited from safe-haven demand and falling real yields, making it one of the top-performing assets of the quarter. Infrastructure equities rallied, aided by a pickup in artificial intelligence (AI) infrastructure investment and government spending, while global real estate stocks posted modest gains as interest rate cuts improved relative valuations.
At a macroeconomic level, the picture remained mixed. In the U.S., job growth slowed, raising concerns about the health of consumer demand and increased pressure on the Federal Reserve to support growth. However, inflation remained stubborn, with the imposition of trade tariffs expected to add to the inflationary burden on consumers.
The release of President Trump’s flagship budget reconciliation package, the “One Bill Beautiful Bill Act”, which extends tax cuts while reducing spending on areas such as healthcare and clean energy, raised further questions for investors. On one hand, the bill is expected to support growth, while on the other, estimations indicate that it will add between $3 and $5tn to US Federal debt over the next decade.
In Europe, fiscal support in Germany and Southern Europe helped offset the headwinds of rising unemployment, while inflation appears to have settled.
Overall, as the chart above indicates, inflation levels across the major global markets do appear to be normalising at around the 2% level, however, moving forward economists expect inflation volatility.
Despite the level of trade and tariff uncertainty, corporate earnings remained resilient through Q2, particularly in the U.S., where 77% of S&P 500 companies announced earnings that exceeded market expectations. AI-driven capital expenditure remained a key theme, especially in technology and infrastructure sectors. Across Europe, earnings have also edged upwards, with a strengthening European consumer helping boost the outlook for domestically focused European corporates.
Looking ahead, markets remain focused on several key risks: the outcome of trade negotiations before the July 9 tariff enforcement deadline, the trajectory of inflation, and any resurgence in geopolitical tensions. Monetary policy divergence is expected to persist, leading to continued volatility across government bonds and currency markets.
Within portfolios, our focus remains on ensuring diversification across geographies, asset classes, sectors, and investment styles. By maintaining a balanced approach, focusing on quality, and remaining tactically flexible, we as investors can position portfolios to weather potential volatility while capturing opportunities as they emerge.
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This publication was prepared by Imogen Hambly CFA, Portfolio Manager for Fairstone Private Wealth Ltd (United Kingdom).Fairstone Private Wealth Ltd. is authorised and regulated by the Financial Conduct Authority (FRN: 457558)
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Information as of the date of publication 30/06/2025
