The Markets In 2025: A First-Half Review

By Paul T. Murray, AIF®, ChFC® and Tyler Breder, CFP®

The financial markets reminded us of their resiliency in an up and down, and then up again, first half of 2025. President Trump's plan to bring about change in the modern world order of trade threw the financial markets into panic, resulting in extraordinarily volatile markets, and trillions of dollars in losses for market investors in the early part of the year. The scope of his plan stunned the global stock markets, and the dollar fell precipitously. After cratering nearly 18% at it's worst point in April, the S&P 500 has recouped all of its losses and marched on to new highs. The reasons for this are pretty simple: the threat of meaningful and punishing tariffs was not matched by the actual implementation of meaningful and punishing tariffs, which ultimately means that there has been no real interruption of trade, no significant increases in import prices, and no major concern for higher inflation.

When investors caught on that the tariff threats seemed to be only a negotiating tactic, bold investors bought low, betting that the president would not follow through on his threats. That risky bet paid off, and the S&P 500 ended the mid-point of the year with a 5.5% gain. One sticky downside of the trade war for U.S investors is the weakness of the U.S. dollar, which suffered its worst first half drop in over 50 years, declining nearly 11%. It was not just the tariffs that caused a decline in the value of the dollar. The expected increases in our national debt from the extension of the 2017 tax cuts, and the likelihood of Federal Reserve rate cuts later this year also contributed to the depreciation of the dollar. There are many challenges caused by a week dollar for businesses and investors, and our retirement age clients will experience first-hand the penalty of having to spend more dollars to pay for experiences on their next vacation outside of the United States.

While the tariff threats have not yet impacted American consumers in a significant way, there is a looming July 9th deadline that may test the president's gambit of creating more fair trade through tariff policy. If that deadline passes and much higher tariffs are imposed on foreign goods, the economy and markets may once again be tested. One area where consumers have been seeking relief has been with interest rates. Relatively high mortgage rates and auto loan rates, in particular, are making it difficult for consumers to make big purchases, and many major housing markets around the U.S. have been experiencing price declines. The Federal Reserve sets interest rate policy and has been unwilling to lower rates until it is sure that potentially higher tariffs do not cause inflation.

Here is a round up of the key events in the first-half of 2025:

The Stock Markets

At it's worst point, the S&P 500, the benchmark U.S. index, was down nearly 18% by April, after which it rallied to finish up 5.5% by June 30th.
The Nasdaq Composite dropped by 23.4% into April, ultimately finishing up 5.7% by the end of June.
The "Magnificent 7" stocks - Apple, Microsoft, Amazon, Alphabet (Google), Meta (Facebook), Nvidia and Tesla - have been market leaders over the last three years, but only three outperformed the S&P 500 in the first half of the year.
Overseas markets drew investor funds in the "sell America trade," and outperformed the U.S. markets at levels not seen in years, up 20% at the mid-point of the year, according to Blackrock.

Bond Markets and Interest Rates

Treasury yields were on quite a roller coaster ride, starting the year at around 4.7% and then falling to 3.86% during the April tariff sell-off.
Those same Treasuries recovered to a yield of nearly 4.2% to end June.
In total return, Vanguard's Total Bond Market Index fund is up 3.97% during the period.
Over the same period, mortgage rates followed Treasury yields from a high of 7% to start the year, to a low in the mid 6% range, settling at 6.9% at the end of June.

Gold, Commodities, and Bitcoin

Gold soared 24% in the first half of the year driven by the falling dollar, foreign governments stockpiling, the doomsday trade, among other things.
Industrial metals aluminum and copper showed strength, while lead and nickel declined.
Oil prices declined from about $80 per barrel at the beginning of the year to around $65 by June 30th.
Bitcoin is up 13.3% year to date.

Geopolitics

President Trump visited the Middle East, unveiling major financial partnerships and investments involving Saudi Arabia and the United Arab Emirates.
The Ukraine-Russia war raged on after failed attempts to bring the warring parties to the negotiating table.
Israel expanded its war against existential threats by attacking the primary source, Iran, and the markets merely shrugged.

Investors were reminded of a valuable lesson about investing in the fist half of the year: markets tend to overshoot to the downside in the early days of crises, but find a way to right-size and compensate to a new normal over time. It may be wise to strategically modify your investment approach to adjust to new developments, but there is little reason to wholesale abandon the markets as a growth engine for your savings in a time of crisis. As we start the second half of the year, there is still the possibility of further market volatility from tariff threats. While most market strategists and economists believe that additional U.S. trade policy threats will be contained and remain manageable, there is always the possibility that the a worse case scenario may play out. Remaining diversified with a strong defensive focus in your portfolio, like principal protected investments and guaranteed lifetime income strategies, will help investors protect against the potential for rough waters ahead, while still offering participation in the growth expansion in stock markets.