The twists and turns of the tariff tango dominated the financial markets during the second quarter.
The downward pressure on stock prices at the end of the first quarter intensified following President’s Trump’s “Liberation Day” tariff announcements on April 2. Concerns over the impact of those trade policies on the global economies led to a double-digit decline in equity prices and a brief visit to bear market territory during the following week. That decline was reversed after President Trump implemented a 90-day Reciprocal Tariff pause on April 9th. Stock prices reached new record highs by the end of the quarter, with an accompanying rebound in consumer confidence and easing of inflationary expectations. Monetary policy remained on hold, as Fed Chair Jerome Powell continued to take a “wait and see” approach until the impact of the tariffs could be better analyzed. High mortgage rates weighed heavily on the housing market, with extremely low levels of existing home sales reported.
The iShares S&P 500 Growth ETF (IVW) skyrocketed 17.9% for the quarter, driven by its concentration in the Tech sector. The iShares S&P 500 Value ETF (IVE) advanced by a more modest 4%, weighed down by underperformance in the Financial, Energy, Utility, and Health Care sectors.
In contrast to the equity market, the fixed income market was very stable. The yield on the 10-year Treasury closed at 4.23%, almost exactly where it started the quarter. It is also the same yield as it was in October 2024 and October 2022, exactly in the middle of its range of 3.5% to 5% over the last 30 months.
Gold prices held steady, touching new record highs in early May and June. The Dollar steadily declined during the quarter, reaching its lowest level since March 2022 at the end of the quarter. Crude oil prices had a wild ride, surging 15% as Israel and Iran exchanged missile attacks in mid-June, but retracing those gains as a ceasefire took hold.
As for the outlook for the economy, monetary policy will remain an important factor in 2025, with the expectation of two interest rate cuts by year end. Trade developments will continue to be front and center. The economic data has been affected by disruptions in advance of the tariff deadlines, with companies building inventories and consumers accelerating purchases. The pull-forward of that activity could result in a slower economy in the upcoming quarter. Already there have been signs of softening in the labor market. The impact on corporate earnings reports and guidance is a significant wildcard.