by The Gould Asset Management Team
Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the Second Quarter of 2025. The excerpt is posted here for the benefit of our blog subscribers.
Stocks Rally in Q2, Capping Volatile Quarter
Global stock markets swung sharply in Q2 2025 after new US tariffs in April triggered a swift sell off. Markets rebounded once trade duties were paused, lifted by renewed US tech strength and solid corporate earnings. Despite geopolitical tensions and mixed economic data, sentiment improved over the quarter, even as central banks adopted a more cautious tone on rates.
US large cap stocks, as represented by the S&P 500 Index, rose 10.9% in Q2, as initially elevated trade tensions gradually subsided and investor interest in tech and AI-related stocks rebounded. Optimism about potential Fed rate cuts later this year also provided a tailwind. The strong second-quarter rally puts US large cap stocks up 6.2% year-to-date.
In addition to the Technology sector (up 22.9% in Q2), Communication Services (up 18.5%) also performed well during the quarter, as did Industrials (up 12.9%). The Health Care sector (down 7.2%) was the weakest performer, as the Trump administration’s efforts to lower drug prices in the US put pressure on the share prices of some healthcare companies.
US mid and small cap stocks outpaced large caps in Q2, with the Wilshire 4500 stock index rising 12.3%, though year-to-date gains (up 3.0%) trail large caps. Outperformance stemmed from investors’ renewed risk appetite and a favorable rate environment.
International developed and emerging markets were among the top performers on the quarter, with the MSCI EAFE (developed markets) stock index rising 12.1% (up 19.9% year-to-date), while the MSCI Emerging Markets index climbed 12.2% (up 15.6% year-to-date). International stocks have significantly outpaced US stocks in 2025, bolstered in part by a weaker US dollar (down 7.5%). Additional support has come from the European Central Bank (ECB), which has cut interest rates twice in 2025.
The quarter saw a sharp spike in volatility, reaching levels not seen since the early days of the pandemic. Investor concerns over escalating tariffs pushed the VIX index above 50 in early April. As trade tensions subsided and market sentiment improved, volatility eased, with the index closing the quarter at a pedestrian 17, roughly its historical average
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