The second quarter of 2025 reminded investors that markets have a mind of their own.
Despite a noisy backdrop of geopolitical tension, stubborn inflation, and shifting expectations around monetary policy, global markets showed surprising strength. From equities to tangible assets, performance was broadly positive, an encouraging sign for long-term investors who’ve remained steady through short-term fluctuations.
Let’s take a closer look at what moved markets this past quarter and where we go from here.
A Strong Quarter Across the Board
US equities led the way in Q2, with the Russell 3000 Index gaining 11%. The S&P 500 rose 10.5%, and small-cap stocks, as measured by the Russell 2000, advanced 8%. International developed markets were no slouch, either: the MSCI World ex USA Index climbed 12%, and emerging market equities (MSCI EM Index) matched that pace.
Real estate also rebounded, and bonds held their ground despite fluctuations in interest rates. The Bloomberg US Aggregate Bond Index gained 1.2%, reflecting a calmer fixed-income market compared to earlier quarters.
All major asset classes ended the quarter in the green, a reminder of the power of diversification in uncertain environments.
What’s Driving the Optimism?
At first glance, investor sentiment might seem oddly disconnected from reality. Conflicts abroad, including renewed tensions in the Middle East, continued to make headlines. Yet markets appear to be looking beyond near-term uncertainty, betting on a resilient global economy and stable or potentially falling interest rates later this year.
Economic data supported some of that optimism. The US labor market remained robust, with 147,000 jobs added in June and wage growth of 3.7% year-over-year, comfortably outpacing inflation. The unemployment rate held steady at 4.1%, and consumer spending remained strong, if slightly more cautious.
Meanwhile, inflation metrics came in near the Federal Reserve’s 2% target. The Consumer Price Index (CPI) rose 2.4% year-over-year through May, and the Fed’s preferred measure, the Personal Consumption Expenditures (PCE) Index, landed at 2.3%.
The Fed Holds Steady—for Now
After a series of rate hikes in 2022 and 2023, the Federal Open Market Committee (FOMC) chose once again to hold rates steady in June. While there’s growing chatter about a possible rate cut before year-end, the Fed has made it clear that any move will depend on a broader cooling of inflation and continued labor market stability.
For now, the central bank appears content to wait and see. The result? Markets are pricing in the possibility of easier monetary policy down the line, fuel for recent equity gains.
Under the Surface: Mixed Signals
While top-line numbers look healthy, not all indicators are pointing in the same direction. The Conference Board’s Leading Economic Index fell again in May, its second consecutive monthly decline. Manufacturing activity remained sluggish, and some business leaders expressed growing uncertainty about long-term investment plans.
In other words, the economy is still expanding, but perhaps more cautiously.
Global Markets Reassert Their Value
One of the most notable stories of 2025 has been the strong performance of international equities. After years of underperformance relative to the US, global stocks have made a convincing comeback. A weaker US dollar and attractive valuations have drawn investors back to international markets, and many diversified portfolios are reaping the benefits.
As of June 30, international developed stocks were up more than 18% year-to-date, nearly triple the S&P 500’s return over the same period. For investors who’ve stayed globally diversified, this has been a welcome shift.
The Case for a Balanced Approach
For all the ups and downs of the past year, the market’s message remains remarkably consistent: Stay diversified. A blend of US and international stocks, high-quality bonds, and thoughtful exposure to tangible assets remains a resilient foundation.
At quarter-end, the 10-year US Treasury yield held steady at 4.23%, and gold prices (often viewed as a safe-haven asset) rose another 5.16%, closing at $3,319.30. Oil prices, on the other hand, slid nearly 9%, reflecting mixed signals around global demand.
Looking Ahead
As we move into the second half of the year, the biggest questions remain: Will inflation continue to cool? When and how aggressively will the Fed shift course? And how will markets respond to the Trump administration’s evolving policy priorities?
In times like these, we believe it’s especially important to focus on what you can control: your goals, your plan, and your long-term strategy. At Stirling Capital, we’re here to help you stay grounded, informed, and prepared for whatever lies ahead.
If you have questions about your portfolio or want to discuss how global trends could impact your financial picture, don’t hesitate to reach out. We’re always glad to hear from you.
