July 15, 2025

Second Quarter Highlights:

Financial Markets

  • More aggressive than expected U.S. tariff announcements on Liberation Day set-off a sharp selloff across global financial markets. The S&P 500 dropped 12% and the 10-year Treasury bond yield rose (prices fell) a half percentage point over the four trading days until President Trump announced a 90-day pause on reciprocal tariffs.  Foreign markets reacted similarly.  Risk assets quickly rebounded on improved sentiment, strong earnings reports, better than expected inflation and labor market data, and new government policies such as tax cuts, defense and infrastructure spending increases, and subsidy measures.  Several equity indices including the S&P 500 and the Australia stock market index (S&P ASX 200) hit new record highs by the end of the quarter.
  • Oil prices ended the quarter lower despite a brief spike during the Israel/Iran conflict because production increased while global economic activity slowed. The U.S. dollar weakened about 10%.

Overview of the Economy

  • The inflation rate slowed slightly in the U.S. and Europe and was stable in Canada, China, and Japan.
  • S. economic data continued to show resilience in key areas such as the labor market even though the housing sector continues to be weak and the tariff uncertainty is disrupting the industrial sector.  Some improvement was reported in other regions, such as the Eurozone and China manufacturing purchasing managers indices (PMI) inching up.  However, the services PMIs weakened in those regions.

Notable Events

  • The Federal Reserve (Fed) held rates steady citing resilient economic activity and a higher inflation outlook related to tariffs. Several other countries cut interest rates to support their economies amid tariff uncertainty.

Quarterly Market Report Q2 2025