Markets Have Strong 2nd Quarter
- Joshua Rigden
- Jul 2
- 11 min read
Global Market Commentary: Second Quarter 2025
In the second quarter of 2025, U.S. equity markets posted strong gains, buoyed by moderating inflation and resilient investor sentiment despite global trade tensions. A key driver of market movement was the evolving tariff landscape, with newly imposed levies on select imports – particularly in the tech and renewable energy sectors – reshaping investor expectations. While these trade policy shifts introduced pockets of volatility, markets largely interpreted them as manageable and potentially stimulative to domestic production in the medium term.
At the same time, inflation showed meaningful signs of cooling. Both the Consumer Price Index and the Producer Price Index eased more than anticipated, reinforcing expectations that the Federal Reserve may maintain a patient stance on interest rates. Slower price growth supported valuations across a range of sectors, with tech and consumer discretionary stocks outperforming. Investor optimism culminated in a strong finish to the quarter, as both NASDAQ and the S&P 500 closed at record highs, reflecting confidence in the broader economic outlook and corporate earnings momentum.
For the first quarter of 2025:
The DJIA gained 5.0%;
The S&P 500 advanced 10.2%;
NASDAQ leapt 16.7%; and
The Russell 2000 added 8.1%.
Further, we saw that:
Market volatility, as measured by the VIX, decreased throughout the quarter, losing about 20% overall, although there was a massive spike early in the quarter where volatility spiked by over 150%.
West Texas Intermediate crude ended the quarter down about 8%, although prices briefly topped $73 before settling at $65.68/barrel, well below the $84 level seen at this time last year.
Market Performance Around the World
Investors found a lot of bright spots overseas, as 48 of the 49 developed markets tracked by MSCI posted gains in Q2, with 39 of them rising more than 10%. Emerging markets fared just as well: 45 of the 46 developing markets ended the quarter in positive territory, with 25 surging more than 10%.
Index Returns | Q22025 |
MSCI EAFE | +10.58% |
MSCI EURO | +10.87% |
MSCI FAR EAST | 11.13% |
MSCI G7 INDEX | +10.83% |
MSCI NORTH AMERICA | +11.10% |
MSCI PACIFIC | +11.79% |
MSCI PACIFIC EX-JAPAN | +13.04% |
MSCI WORLD | +10.96% |
MSCI WORLD EX-USA | +10.91% |
Source: MSCI. Past performance cannot guarantee future results
Sector Performance Rotated in Q22025
Sector performance in the second quarter of 2025 was broadly positive, with 8 of the 11 S&P 500 sectors finishing the quarter in the green – several posting gains of more than 10%. This marked a sharp turnaround from the first quarter of the year, when only four sectors managed to end higher and key areas such as Information Technology and Consumer Discretionary had fallen into correction territory.
A defining feature of the quarter was the increased dispersion in returns. While Information Technology soared over 23%, Energy tumbled more than 8%, underscoring a growing divergence in performance across sectors. This contrast points to selective investor optimism, with capital flowing toward sectors benefiting from moderating inflation and AI tailwinds, while others, such as Energy, faced headwinds from commodity price pressures and shifting global demand.
Here are the sector returns for Q2 2025 and Q1 2025:
S&P 500 Sector | Q12025 | Q22025 |
Information Technology | -14.66% | +23.54% |
Energy | +9.51% | -8.40% |
Health Care | +4.10% | -6.79% |
Real Estate | +2.14% | -0.12% |
Consumer Staples | +1.80% | +2.13% |
Consumer Discretionary | -16.02% | +11.12% |
Industrials | -2.26% | +13.28% |
Financials | +0.96% | +6.44% |
Materials | +0.22% | +3.70% |
Communication Services | -8.23% | +18.48% |
Utilities | +2.50% | +4.59% |
Source: FMR
Reviewing the sector returns for just the 2nd quarter of 2024, we saw that:
8 of the 11 sectors were painted green and 3 were painted red, as there were some big swings from quarter to quarter;
The tech-laden sectors – think Information Technology and Communication Services – outperformed dramatically from quarter-to-quarter.
Consumer Discretionary saw a huge swing from Q12025 to Q22025, which might bode well for overall consumer spending.
The differences between the best (+24%) performing and worst (-8%) performing sectors in the second quarter was exceptionally wide.
Fed Keeps Rates the Same
The Federal Reserve, as widely expected, opted to leave its benchmark interest rate unchanged, maintaining the target range at 5.25% to 5.50%. This decision reflects the central bank’s ongoing cautious stance amid persistent inflationary pressures. In remarks following the Federal Open Market Committee meeting, Chair Jerome Powell reiterated the Fed’s commitment to its inflation target, emphasizing that policymakers require “greater confidence that inflation is moving sustainably toward 2 percent” before considering any rate cuts.
“We’re prepared to maintain the current level of restriction for as long as appropriate,” Powell stated, signaling that the central bank is not in a hurry to ease monetary policy prematurely.
Powell acknowledged recent signs of disinflation but warned that they are not yet sufficient to justify a pivot. The Fed remains data-dependent, and upcoming economic indicators – particularly those related to core inflation, labor market strength, and consumer spending – will play a critical role in shaping future policy moves. Market participants, while hopeful for a cut later in the year, now appear to be recalibrating expectations in light of the Fed's patient tone.
Consumer Price Index Drops
In June 2024, U.S. consumer prices experienced a modest decline, with the Consumer Price Index for All Urban Consumers (CPI-U) decreasing by 0.1% on a seasonally adjusted basis. This marked the first monthly drop since May 2020. Over the 12 months ending in June, the all-items index rose by 3.0% before seasonal adjustment, down from a 3.3% increase in May.
The decrease in the CPI was primarily driven by a significant 3.8% drop in gasoline prices, which followed a 3.6% decline in May. Shelter costs, a major component of the CPI, rose by 0.2% in June, a slowdown from the 0.4% increase observed in May. Food prices increased by 0.2% in June, with grocery store prices edging up by 0.1%. Notably, the core CPI, which excludes food and energy, rose by just 0.1% in June, the smallest increase since August 2021.
However, some areas remain inflation hotspots. For instance, motor vehicle insurance prices rebounded by 0.9% in June after falling 0.1% in May.
Additionally, costs for household furnishings, personal care, education, recreation, and apparel saw increases. Despite these pockets of rising prices, the overall trend indicates a cooling of inflation, providing some relief to consumers and policymakers alike.
Producer Price Index Rises by 0.1%
In May 2025, the U.S. Producer Price Index (PPI) for final demand rose by 0.1% on a seasonally adjusted basis, following declines of 0.2% in April and 0.1% in March. On an unadjusted basis, the index increased by 2.6% over the 12 months ending in May. The modest monthly uptick was driven by a 0.1% rise in prices for final demand services and a 0.2% increase in final demand goods. Core PPI, which excludes food, energy, and trade services, also edged up 0.1% in May and was up 2.7% year-over-year .
Within final demand services, the slight increase was primarily due to a 0.4% rise in trade services margins, notably a 2.9% jump in machinery and vehicle wholesaling. However, prices for transportation and warehousing services declined by 0.2%, and airline passenger services fell by 1.1%. In the goods sector, the 0.2% increase was largely attributed to a 0.2% rise in core goods prices, with tobacco products up 0.9% and gasoline prices also contributing. Conversely, jet fuel prices dropped by 8.2%, and prices for pork and carbon steel scrap also declined .
Regarding intermediate demand, prices for processed goods edged up 0.1%, while unprocessed goods fell by 1.6%, marking the third consecutive monthly decline. The decrease in unprocessed goods was mainly due to a 3.5% drop in unprocessed energy materials, including an 18.7% fall in natural gas prices. Prices for services for intermediate demand rose by 0.1%, driven by a 0.7% increase in trade services margins, particularly a 4.9% rise in metals, minerals, and ores wholesaling
GDP in 1Q2025 Down 0.5%
According to the U.S. Bureau of Economic Analysis, the U.S. economy contracted at an annual rate of 0.5% in the first quarter of 2025, marking the first quarterly decline since early 2022. This third estimate represents a downward revision from the previous estimate of a 0.2% decline.
The contraction was primarily driven by a significant increase in imports, which surged by 41.3%, subtracting 4.83 percentage points from GDP. This surge in imports was largely due to businesses accelerating purchases ahead of anticipated tariffs. Additionally, federal government spending decreased by 4.6%, the largest drop since 2022, further contributing to the GDP decline.
Consumer Sentiment Leaps
In June 2025, the University of Michigan's Surveys of Consumers reported a notable improvement in consumer sentiment, marking the first increase in six months. The Index of Consumer Sentiment rose by 16.3% from May to reach 60.7.
Despite this uptick, the index remains approximately 18% below the post-election high observed in December 2024. This positive shift was broad-based, with significant gains in expectations for personal finances and business conditions, both increasing by around 20% or more.
Inflation expectations also showed a downward trend. Year-ahead inflation expectations decreased from 6.6% in May to 5.0% in June, while long-run expectations fell from 4.2% to 4.0%. These are the lowest readings in several months, suggesting a softening in consumers' inflation concerns. However, inflation expectations remain above the levels seen in the second half of 2024, indicating that consumers still perceive persistent inflation risks.
Despite the overall improvement in sentiment, consumers continue to express concerns about potential economic slowdowns and the impact of tariffs.
While worries about the Middle East have not significantly influenced economic outlooks, the uncertainty surrounding trade policies continues to weigh on consumer confidence. These mixed sentiments reflect an economy in transition, with consumers cautiously optimistic but still wary of underlying risks.
Consumer Confidence Drops
In June, Americans’ confidence in the economy took a noticeable hit. The Conference Board’s Consumer Confidence Index® dropped by 5.4 points to 93.0, down from 98.4 in May. This reflects growing concern among households about both current conditions and what lies ahead. Consumers’ views of the present – specifically business activity and the job market – declined by 6.4 points, while their outlook for the future fell even more sharply. The Expectations Index dropped to 69.0, well below the 80-point threshold that historically warns of a possible recession on the horizon.
According to The Conference Board, “consumer confidence weakened in June, erasing almost half of May’s sharp gains.” Both how people feel now and what they expect in the months ahead contributed to the slide. Fewer Americans viewed current business conditions positively, and concern about job availability grew for the sixth month in a row – though the labor market still appears relatively strong. People were also gloomier about future job prospects, business conditions, and income, showing a general unease about where the economy is headed.
This dip in confidence wasn’t limited to one demographic. It was felt across all age groups and nearly every income bracket. Politically, the mood darkened across the board as well, with the steepest decline reported among Republican respondents. The shared nature of this downturn suggests that growing economic anxiety is cutting across typical dividing lines, pointing to broader uncertainty about the nation’s financial future.
Strong Corporate Earnings Continue
As of June 27th, FactSet reported several key financial metrics for companies within the S&P 500. For the second quarter of 2025, the estimated year-over-year earnings growth rate is 5.0%. If this estimate holds, it would represent the lowest earnings growth for the index since the fourth quarter of 2023, when it was 4.0%. Notably, this figure reflects a decline from March 31, when the estimated earnings growth rate for Q2 2025 was 9.4%. All eleven sectors within the index are now projected to report lower earnings than previously expected, due to downward revisions in earnings-per-share (EPS) estimates.
In terms of earnings guidance, 59 S&P 500 companies have issued negative EPS guidance for the quarter, while 51 have issued positive guidance. Meanwhile, the forward 12-month price-to-earnings (P/E) ratio for the index stands at 21.9. This valuation is higher than both the 5-year average of 19.9 and the 10-year average of 18.4, indicating relatively elevated market expectations.
New Home Sales Plummet
According to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development, sales of new single-family houses in May 2025 reached a seasonally adjusted annual rate of 623,000. This figure represents a 13.7% decline from the April 2025 rate of 722,000 and a 6.3% decrease from the May 2024 rate of 665,000.
The inventory of new houses for sale at the end of May 2025 was estimated at 507,000, reflecting a 1.4% increase over the April 2025 total of 500,000 and an 8.1% rise compared to the May 2024 figure of 469,000. At the current sales pace, this inventory represents a 9.8-month supply, which is 18.1% higher than April 2025’s 8.3-month supply and 15.3% above the 8.5-month supply recorded in May 2024.
In terms of pricing, the median sales price of new houses sold in May 2025 was $426,600, marking a 3.7% increase from April 2025’s $411,400 and a 3.0% rise from the May 2024 median of $414,300. The average sales price in May 2025 was $522,200, up 2.2% from April 2025’s average of $511,200 and 4.6% higher than the May 2024 average of $499,300.
Construction Spending Dips
In April 2025, total construction spending in the United States was estimated at a seasonally adjusted annual rate of $2,152.4 billion. This marks a slight decline of 0.4% from the revised March estimate of $2,162.0 billion and a 0.5% decrease compared to April 2024’s figure of $2,163.2 billion. Despite this monthly dip, cumulative construction spending for the first four months of 2025 reached $660.2 billion – 1.4% higher than the $651.3 billion spent during the same period in 2024.
Private construction accounted for the majority of activity, with spending totaling $1,638.9 billion on a seasonally adjusted annual basis – down 0.7% from March. Within this category, residential construction fell 0.9% to $892.8 billion, while nonresidential construction slipped 0.5% to $746.0 billion. In contrast, public construction saw modest growth, rising 0.4% to a seasonally adjusted annual rate of $513.5 billion. Educational construction held nearly steady at $110.9 billion, just 0.1% below the previous month, while highway construction increased 0.5% to $146.3 billion, reflecting ongoing investment in infrastructure.
Retail Sales Drop
The May 2025 report showed a 0.9% decline in retail and food services sales from the previous month, totaling $715.4 billion – the largest drop since May 2023. The decline was driven largely by a 3.5% dip in motor vehicle sales, following a surge earlier this year as consumers rushed to beat expected tariffs on imports.
Other categories – like home improvement, electronics, and grocery stores – also posted declines. Still, some segments showed strength: nonstore retailers (e.g., e-commerce) reported an 8.3% year-over-year gain, while food services and drinking places rose 5.3% compared to May 2024.
Despite the overall decline, the "control group" – which excludes autos, gas, building materials, and food services – rose 0.4% in May.
This suggests stable core consumer spending, in line with forecasts, and supports expectations for 2% annualized GDP growth in Q2. Analysts believe the May dip may be temporary, influenced by early-year spending ahead of tariffs and unseasonably wet weather.
Sources: bea.gov; conference-board.org; census.gov; bls.gov; umich.edu; msci.com; fidelity.com; nasdaq.com; wsj.com; morningstar.com; census.gov; bls.gov
About Rigden Capital Strategies
Rigden Capital Strategies was born out of a simple but powerful idea: financial advice should be personal, transparent, and built around your goals—not generic solutions or product-driven sales. Fueled by decades of experience and a desire to see clients truly succeed, we’ve created a process rooted in value, integrity, and progress.
As a fee-only fiduciary, we offer dynamic, stress-tested wealth plans tailored to your life. Our expertise spans investment management, retirement and tax planning, and estate guidance. Blending active and passive strategies to help your portfolio through any market. We believe in real relationships, clear strategies, and long-term results.
Your goals, our strategies. Together, let’s make your goals happen.
Disclosure: This content is for informational and educational purposes only and should not be interpreted as financial, legal, or tax advice. While we strive for accuracy, we do not guarantee the completeness or reliability of the information provided. Investment decisions should be based on individual circumstances, and we recommend consulting a qualified professional before implementing any financial, legal, or tax strategies. Past performance is not indicative of future results, and all investments carry risks, including potential loss of principal. No investment strategy can guarantee success or protect against loss in all market conditions. Investors should carefully consider their risk tolerance, investment objectives, and financial circumstances before making investment decisions.
Check out our other insights at https://www.rigdencapital.com/blog.
