Executive Summary 

• Despite tariff uncertainty and Middle East tensions, equity markets proved remarkably resilient in the second quarter of 2025.
• Diversification has proven its worth this year and provided stark reminders of the costs of wholesale market timing.
• Trade policy has found a tentative footing, but the outcome of trade negotiations, the reconciliation bill, and Fed policy will be key.
• The risk of recession has fallen as trade policy has softened, though the path taken from here remains uncertain.
• Investors should maintain neutral positioning while actively looking to rebalance and diversify portfolios. 

Equity markets whipsawed in Q2, while diversified investment approaches continued to prove their worth

• In the wake of the “Liberation Day” tariff announcement, the S&P 500 briefly flirted with a bear market, falling nearly 20% from its all-time high.
• Following one of the worst weeks for the index since 2020, the S&P 500 posted a ~10% single session gain, highlighting the opportunity costs for investors engaging in wholesale market timing efforts amid peak uncertainty and market fears.
• International equity markets continued to prove their place in diversified equity portfolios, with both developed and emerging markets outperforming, assisted by a weaker U.S. dollar. 

Trade policy has found a tentative footing, but the outcome of trade negotiations will be key

Shown in the left panel is a timeline of the cumulative amount of expected revenue generated from tariffs announced as of each day since President Trump’s second inauguration, measured in billions of U.S. dollars. Historical and projected tariff figures are derived from internal and third-party sources believed to be reliable. Actual results may differ materially from expectations.
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• Changes in trade policy consumed the headlines in Q2, with April seeing the most volatility with the implementation of tariffs and then the subsequent 90-day pause.
• Trade negotiations with key trading partners are ongoing, with some, such as the U.K. and China securing some relief, while others, such as Japan, the EU, and India have yet to reach an agreement.​​
• Overseas, tensions flared in the Middle East, but fears that a broader conflict in the region would disrupt global energy markets proved short-lived.

The “One, Big, Beautiful Bill” may provide near-term stimulus, partly offsetting tariff headwinds

Data shown are the expected fiscal stimulus effects by year due to key policy changes associated with The One Big Beautiful Bill Act in the form passed by the U.S. House of Representatives on May 22, 2025 (green bars) and tariffs implemented through executive action between January 6 and May 13, 2025 (blue bars). Orange dots represent the net impact between both dimensions of policy change. The analysis does not include the impact of tariffs announced but not yet implemented, nor the effects of trade agreements that have not yet reached a legally binding stage. Actual results may differ materially from expectations and are subject to change alongside adjustments to fiscal policies. 

• New spending and proposed cuts in the reconciliation bill under discussion in Congress are expected to help offset the potential economic headwinds from tariffs.
• Investors should expect the outcome of negotiations regarding the One Big Beautiful Bill Act to be a key market catalyst in Q3 ahead of a late-August debt ceiling deadline.

Softened tariff proposals have tempered recession risks, though the path taken from here remains uncertain

A diversified portfolio should continue to reduce risks and enhance potential returns