The U.S. stock market more than recovered from April’s tariff surprise.
The U.S. stock market gained 5.8%¹ through the end of June, fully recovering from a sharp 19%¹ decline triggered by new tariff policy announcements in early April. Stock price volatility remains elevated, partly because a small number of large technology companies continue to dominate U.S. public markets. Just ten stocks now represent 38% of the S&P 500 index value.
Stock markets outside the U.S. substantially outperformed the U.S. market.
International diversification delivered strong returns during the first half of the year, both in local currency terms and especially for U.S.-based investors. Developed markets returned 19.9%², with Germany leading the way. Emerging markets posted gains of 15.6%³. The U.S. Dollar weakened 11%⁴ against a basket of major currencies. This decline may represent a natural correction after an extended period of Dollar strength or reflect efforts by investors and central banks to reduce their currency concentration.
Interest rates fluctuated during the quarter but remain above inflation.
The 2-year U.S. Treasury Note currently yields 3.7%, while the 10-year Note yields 4.3%. Both rates exceed the latest inflation reading of 2.7%⁵. The Federal Reserve is maintaining current interest rate levels until there is clearer visibility on the potential economic impacts of government spending, tariffs, and immigration policies.
Economic and geopolitical uncertainties remain.
Strong equity returns and stable interest rates might suggest that this year’s risks are now behind us. However, while some uncertainties have been resolved, others persist. Tariff negotiations continue, as do conflicts involving Iran, Gaza, and Ukraine. Longer-term challenges include unsustainable U.S. government debt, climate change, and China’s ambitions regarding Taiwan. These factors may gradually influence markets over time. No one can predict which of these risks—or others not yet apparent—might eventually trigger the next market decline. Stock markets will continue their short-term fluctuations while likely maintaining their long-term upward trajectory over decades.
April’s rapid decline, followed by an equally swift recovery, illustrates the importance of maintaining focus on long-term objectives, holding adequate liquid fixed-income investments to weather multi-year stock market downturns, and avoiding emotional reactions to news events.
1 Russell 3000 Index.. 2 MSCI EAFE Index year-to-date in U.S. Dollar terms. 3 MSCI Emerging Markets Index in U.S. Dollar terms. 4 DXI Index of British Pound, Canadian Dollar, Euro, Japanese Yen, Swedish Krona, and Swiss Franc. 5 Core PCE Deflator, Federal Reserve’s preferred measure, year over year.