Quarterly market commentary
The second quarter of the year was marked by extreme volatility, brought about by the scale of US tariffs announced by President Trump on so-called ‘Liberation Day’. There were also concerns about the level of government debt being accumulated by major economies and those governments’ ability to service that debt. Consequently, the volatility extended to both equities and bonds.
The initial shock over tariffs led to a sharp correction in the S&P 500 in particular, as worries grew about their impact on both the domestic economy and global trade. However, when the rout began to affect the US bond market, with yields there rising, following US Treasury Secretary Scott Bessant’s intervention, Trump soon started to send more soothing messages about the tariff levels not being set in stone. That gave the impression that he was using them as a negotiation tactic, in classic Trump style.
This was followed by the announcement of tariff imposition being delayed by 90 days, to allow for negotiations. Following this, equity markets started to recover, to the extent that by the end of the quarter, the S&P rose to set a new all-time high.
European markets matched this performance and ahead year to date, as investors started to reallocate away from the US. The performance of the US dollar had a marked impact on these relative returns, as the currency had its worst first half since 1973, declining around 10% against a basket of currencies. The dip has been attributed to this reallocation of assets away from the US, as the country becomes less of a trusted partner.
Yields in bond markets fluctuated throughout the quarter, particularly as Trump’s ‘One Big Beautiful Bill’ containing tax and welfare cuts alike passed through the House to the Senate. Estimates vary about the impact of the tax cuts on the US fiscal deficit, but the Congressional Budget Office estimated that it would add $3.3tn to the existing $35tn. As a result, government bond yields, particularly longer-dated ones, ended the quarter higher.
This was not restricted to the US, though, as both UK and Japanese governments grappled with their own domestic issues affecting government debt levels, particularly as the UK government rolled back on attempts to cut welfare spending. Corporate bond markets performed well, having initially experienced some volatility around Liberation Day.
At the time of writing, tariffs have again hit the headlines, as the 90- day extension expires and, despite the deadline being pushed back until 1 August, the presidential rhetoric on this front continues, so there is still a lack of visibility on this front. Therefore, their ultimate impact on global trade and the global economy is equally unclear.
The IMF revised down economic growth forecasts following Liberation Day, but even with the most severe tariffs in place, the predictions were not for global recession; just less growth, which is good news.
It also means there is the likelihood of lower interest rates, something we are now beginning to see occur in many economies. Although, the US Federal Reserve Chair, Jerome Powell, continues to adopt a ‘waitand- see’ approach, even here it is felt there will be at least one or two cuts this year.
The impact on company earnings has not been felt so far, as evidenced by Q1 reporting season when they have been quite robust. However, the guidance from the Q2 reporting season commencing in July may tell us more about the impact on the US economy in particular, as tariffs may affect corporate profitability and consumer demand.
Meanwhile, the experience of the second quarter, which as we reminded investors in April, tells us of the importance of remaining invested and as globally diversified as possible as one of the key principles we need to employ to navigate through periods of uncertainty.
Rockhold Asset Management July 2025
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