Equity Markets: A Sharp Reversal
Q2 was a clear turnaround from Q1’s sluggish equity performance. Leading the rebound were large-cap U.S. growth stocks, with the Nasdaq-100 (QQQ) surging +17.8% for the quarter. That brought its year-to-date return to +8.2%, recovering from Q1’s mild loss.
The broader S&P 500 ETF (VOO) also rallied strongly, +10.9% in Q2, now +6.1% YTD. However, value stocks (VTV) and fundamentally weighted U.S. indexes (FNDX) saw more modest Q2 gains of +2.9% and +4.4%, respectively—still enough to turn the year positive.
Small-cap equities (IWM) also bounced back +8.5% in Q2, though still -1.9% YTD, reflecting ongoing pressures from credit conditions and rate sensitivity.
International Equities Led the Way
The standout performers for the first half of 2025 came from abroad:
– International Developed (SPDW): +13.1% Q2 | +20.7% YTD
– Fundamental Intl (FNDF): +11.3% Q2 | +21.2% YTD
– Emerging Markets (EEM): +11.4% Q2 | +16.5% YTD
International markets, which lagged in Q1, took the lead in Q2, bolstered by a weaker dollar, favorable valuations, and improving global growth outlooks.
Bonds: Quiet but Steady
Bonds posted modest but positive returns in Q2:
– Intermediate Bonds (VGIT): +1.7% Q2 | +4.8% YTD
– Total Bond Market (BND): +1.2% Q2 | +4.0% YTD
– TIPS (VTIP): +0.9% Q2 | +4.0% YTD
With inflation softening and rate hikes likely behind us, bonds have regained some stability—offering diversification without the drag experienced in past years.
Real Assets: Mixed Picture
Real assets underperformed in Q2:
– Real Estate (VNQ): -0.7% Q2 | +2.0% YTD
– Commodities (DBC): -3.1% Q2 | +2.0% YTD
These asset classes continue to struggle with macro uncertainty and shifting demand patterns, though still remain modestly positive year-to-date.
Diversified Portfolios Rebound
With strong equity tailwinds, diversified portfolios finally posted healthy gains:
– AOA (80% Stocks/20% bonds): +9.3% Q2 | +9.2% YTD
– AOR (60/40): +7.4% Q2 | +7.9% YTD
– AOM (50/50): +5.5% Q2 | +6.6% YTD
– AOK (40/60): +4.5% Q2 | +5.9% YTD
This marked a welcome reversal from Q1, when balanced funds struggled to gain traction amid weak equities and moderate bond returns.
Perspective: Patience Rewarded
The second quarter highlights the importance of long-term perspective. Investors who remained disciplined after Q1’s slow start were rewarded with a robust recovery in Q2.
Looking Ahead The second half of 2025 will likely center on the Fed’s next moves, global election cycles, and the trajectory of economic growth. While recent performance has been encouraging, maintaining a diversified, goals-based strategy remains essential.