The first half of 2025 served as a tremendous reminder of the perils of short-term market timing. Over the past six months, there have been a plethora of market moving headlines – including China’s DeepSeek AI shock, DOGE led federal workforce cuts, tariff implementations & delays, and US military action in Iran – and here we are in early July with the S&P 500 up 6.2% YTD and hitting new all-time-highs. Despite the significant volatility experienced throughout the past two quarters, investors were rewarded for long-term outlooks, diversified portfolios, and unemotional responses to the variety of headline surprises.
The second quarter of 2025 started with significant volatility as the threat of a rapidly rising tariff rate sent equities sliding in late Q1 and into early Q2. However, the “Trump Tariff Turmoil” quickly gave way to TACO (“Trump Always Chickens Out”) as the President slowly began to walk back or delay the proposed tariffs, allowing for the market to gradually recover as the worst-case scenarios began to look unlikely. As of the end of the quarter, the implementation of reciprocal tariffs has been delayed until August 1st, although the market expectation is for a continued market friendly response that includes more tariff delays and trade deals. However, the only trade deals executed during the first 90-day delay period were with the U.K. and Vietnam – talks are ongoing with most other trading partners while additional levies on cooper and pharmaceuticals have been announced.
S&P 500 YTD Performance
Source: YCharts
Entering the year and Trump’s second presidency, the economic trajectory was strong with 11 straight quarters of positive GDP growth dating back to early 2022. This streak was broken in Q1 of 2025 as the US experienced a GDP contraction of -0.5%. However, this soft quarter of GDP growth was driven almost entirely by business & consumer front running of tariffs, as net exports contributed -4.6% to the quarter’s GDP. Outside of the negative impact of elevated imports, Consumption and Business Investment remained positive & estimates of Q2 GDP growth remain positive at over 2%. Despite 10% blanket tariffs on imports & elevated business uncertainty, the expectation is for positive GDP growth beyond this quarter.
Contributors to real GPD growth
Quarter-over-quarter, seasonally adjusted annualized rate
Source: JPMorgan
The labor market remains generally healthy, highlighted by a benign unemployment rate – just 4.1% as of the end of June and hovering near all-time lows. Despite the uncertain conditions created by tariff negotiations & pressure on the Federal workforce via DOGE, businesses have continued to show an unwillingness to lay off employees at scale.
US Unemployment Rate
Source: YCharts
However, we are only in the early days of consumers & businesses digesting the impacts of tariffs. Despite the market’s shrugging off of tariffs as yesterday’s problem, a move from sub 2% effective tariff rates to over 10% remains a risk as consumers and businesses adjust to higher prices on imported goods. Although unemployment remains in a healthy place, consumer confidence surveys show a progressively more difficult environment to get a job. This has been similarly highlighted by a modest uptick in the level of continuing jobless claims as businesses appear hesitant to undergo large hiring plans.
US Index of Consumer Sentiment
Source: Yardeni Research, The Conference Board
The annual rate of inflation continued to moderate over the first half of 2025. Headline CPI reached 2.3% in May, a fresh low since the spike in inflation in 2025. Service inflation – specifically shelter costs – have driven the decline in inflation over the past few quarters as the lagged nature of this data has begun to catch up with real time indicators like Zillow’s Observed Rent Index.
US Headline and Core CPI YoY
Source: YCharts
Despite the significant progress being made on inflation, the Fed continued to hold the Federal Funds rate steady over the course of the year. In the face of persistent public pressure from President Trump, Fed Chair Jay Powell has insisted on keeping rates steady while the impact of tariffs on inflation is observed. The Fed & many market participants expect an increase in inflation over the course of 2025 and into 2026 as tariffs are digested, forcing a more cautious approach by the Fed and Powell. But while the Fed and other Central Banks control the front end of the yield curve, the borrowing rates paid by businesses and households are more reliant on the 10 year rate which remains higher than when the Fed began cutting rates in the Fall.
Federal Funds Rate & 10 Year Treasury Yield
Source: YCharts
While tariffs have contributed to the expectation for higher inflation & thus higher borrowing costs, the size of the federal balance sheet and persistent deficit spending have similarly pressured yields. Despite President Trump’s campaign promises to cut back government spending, Congress recently approved the “Big Beautiful Bill” that will likely maintain federal deficits in the 6% of GDP range. While this spending can be stimulative for the economy at large (public sector deficits are private sector surpluses!), it calls into question the sustainability of maintaining such large fiscal imbalances for extended periods of time.
US Federal Deficit as a Percentage of GDP
Source: YCharts
In a time of profound geopolitical uncertainty, the resilience of US stocks may come as a surprise to many who aren’t regularly checking the price of the S&P. However, the bigger surprise may come from the resilience of non-US equities – an asset class that has seemingly perpetually underperformed domestic stocks. Developed & emerging international equities strongly outperformed the S&P 500 in the first half of the year, bolstered by capital outflows from the US and a weakening exchange rate for the US Dollar. While non-US equities have traded at a significant valuation discount to US stocks for 15+ years, the prospect of more nationalistic economies has driven a modest rotation out of the US. Industrial and defense companies within the EU in particular have been winners in 2025 as the EU has vowed to increase defense spending as reliance on the US has become more questionable. While this has only been a short timeframe, portfolios are benefiting from international diversification for the first time in many years.
Year-to-Date Equity Market Performance
Source: YCharts
Looking forward, calls for continued bouts of volatility in a world of so much uncertainty seems like a sure bet. However, it is wise to keep in mind that uncertainty and volatility is an unavoidable cost on the road to long-term value creation within financial portfolios. The S&P 500 has had an average intra-year drawdown of over 14% dating back to 1980 with pockets of much more dramatic selloffs, but over the long term, equities have delivered persistent inflation-beating rates of returns for investors. Maintaining diversified portfolios of equities, fixed income, and alternatives that suit an investor’s risk profile continues to be the optimal way to grow & sustain wealth.
S&P 500 Intra-year Declines vs. Calendar Year Returns
Despite average intra-year drops of 14.1%, annual returns were positive in 34 of 45 years.
Source: JPMorgan
Disclaimer
The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained herein is intended to constitute legal, tax, accounting, securities, or investment advice nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Simon Quick Advisors LLC), or any non-investment related content, made reference to directly or indirectly in this presentation will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Asset Allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this presentation serves as the receipt of, or as a substitute for, personalized investment advice from Simon Quick Advisors LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Investing in alternatives may not be suitable for all investors, and involves a high degree of risk. Many alternative investments are highly illiquid, meaning that you may not be able to sell your investment when you wish. Risk of alternative investments can vary based on the underlying strategies used.
Certain information contained herein may be “forward-looking” in nature. Due to various risks and uncertainties, actual events or results or the actual performance of the Fund may differ materially from those reflected or contemplated in such forward-looking information. As such, undue reliance should not be placed on such information. Forward-looking statements may be identified by the use of terminology including, but not limited to, “may,” “will,” “should,” “expect,” “anticipate,” “target,” “project,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology.
Simon Quick Advisors LLC is neither a law firm nor a certified public accounting firm and no portion of the presentation content should be construed as legal or accounting advice. If you are a Simon Quick Advisors LLC client, please remember to contact Simon Quick Advisors LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. Simon Quick Advisors, LLC (Simon Quick) is an SEC registered investment adviser with a principal place of business in Morristown, NJ. Simon Quick may only transact business in states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy our written disclosure brochure discussing our advisory services and fees is available upon request. References to Simon Quick Advisors as being “registered” does not imply a certain level of education or expertise.
Historical performance results for investment indices and/or categories have been provided for general comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your account holdings correspond directly to any comparative indices. You cannot invest directly in an index.
Indices included in this report are for purposes of comparing your returns to the returns on a broad-based index of securities most comparable to the types of securities held in your account(s). Although your account(s) invest in securities that are generally similar in type to the related indices, the particular issuers, industry segments, geographic regions, and weighting of investments in your account do not necessarily track the index. The indices assume reinvestment of dividends and do not reflect deduction of any fees or expenses.
Please Note: (1) performance results do not reflect the impact of taxes; (2) It should not be assumed that account holdings will correspond directly to any comparative benchmark index; and, (3) comparative indices may be more or less volatile than your account holdings.
Please note: Indices are frequently updated and the returns on any given day may differ from those presented in this document
Economic, index, and performance information is obtained from various third party sources. While we believe these sources to be reliable Simon Quick Advisors LLC has not independently verified the accuracy of this information and makes no representation regarding the accuracy or completeness of information provided herein.
As of April 1st, 2022, Simon Quick Advisors LLC has changed private capital index providers from Cambridge Associates to Pitchbook Benchmarks.
