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Dear Friends,
As we close out the second quarter of 2025, we want to take a moment to reflect on recent market developments, economic trends, and how we continue to position portfolios in light of evolving conditions. Markets wrapped up June on a strong note, extending the rally that began in late spring. Investor sentiment was buoyed by robust corporate earnings, easing trade tensions, and encouraging economic data. While uncertainty remains, we are encouraged by the improving tone in both domestic and international markets.
Following a rocky first quarter, equity markets staged a strong comeback in Q2, particularly in May and June, driven by a pause in U.S.-China trade tensions and better-than-expected corporate earnings. The S&P 500 gained 5.09% in June and 10.94% for the quarter, while the Nasdaq rose 6.64% in June and an impressive 17.96% for the quarter. The Dow Jones Industrial Average also posted gains of 4.47% in June and 5.46% for the quarter. These results reflect renewed investor confidence.
Corporate earnings continued to exceed expectations, with Q2 earnings for S&P 500 companies growing 13.6%, more than double analysts’ forecasts of 6.6%. Impressively, all 11 major sectors outperformed expectations, signaling broad-based strength and an encouraging sign for long-term investors.
The broader economic backdrop remains mixed. On the positive side, inflation continues to cool, with core CPI falling to 2.5%. Consumer spending and retail sales remain healthy, and job growth, while slowing, remains positive. The U.S. added 139,000 new jobs in May, and the unemployment rate held steady at 4.2%. However, GDP growth for 2025 has been revised down to 1.4%, reflecting softer business investment and tighter financial conditions.
The Federal Reserve held interest rates steady at its June meeting, maintaining the federal funds rate at 4.25% to 4.50%. While no immediate changes were made, many investors now expect the Fed to begin lowering rates in the third quarter, depending on inflation and labor market trends.
International equities have been a bright spot in 2025, benefiting from attractive valuations, a weaker U.S. dollar, and increased fiscal stimulus in regions like Europe. The MSCI EAFE Index rose 2.20% in June and 11.78% for the quarter, while the MSCI Emerging Markets Index climbed 6.14% in June and 12.20% for the quarter. European banks have outperformed many U.S. tech giants since late 2022, and emerging markets, particularly India and Brazil, have shown strong momentum.
Even bonds performed well in June, as falling interest rates boosted prices. The Bloomberg U.S. Aggregate Bond Index gained 1.54% in June and 1.21% for the quarter, bringing its year-to-date return to 3.40%. High-yield bonds also ended the quarter in positive territory, with the Bloomberg U.S. Corporate High Yield Index gaining 1.84% in June and 3.53% for the quarter, supported by narrowing credit spreads and increased investor demand.
Despite recent gains, risks remain. Geopolitical tensions flared briefly in June following Israeli strikes on Iran, though the situation was short-lived. Domestic policy shifts and renewed trade tensions could also contribute to future volatility. However, history has shown that disciplined investors who stay the course are often rewarded over time.
At IEM, we remain committed to a long-term, diversified investment strategy. We continue to monitor market conditions, review portfolio allocations, and make thoughtful adjustments when warranted. Following our recent investment committee meeting, we concluded that no immediate changes are necessary and will continue to stay the course.
As we look ahead to the second half of 2025, we remain cautiously optimistic. The economic foundation is stable, inflation is easing, and corporate earnings continue to support equity valuations. Consumer confidence has also improved, reaching a four-month high in June, its first increase in six months. While short-term volatility is always possible, we believe the long-term outlook remains constructive.
If you have any questions about your portfolio, financial plan, or the current market environment, please don’t hesitate to reach out. We appreciate your continued trust and look forward to helping you navigate the months ahead.
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Sincerely,
The IEM Investment Committee
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