Quarter 2
July 2025
Market returns in the second quarter were exceptionally strong, driven by a combination of resilient earnings, an AI-fueled tech rally, and a stabilizing Fed policy. The new highs at quarter end stand in stark contrast to the global sell-off that began the quarter.
At the start of the quarter, on April 2nd, President Trump announced sweeping tariffs as part of a reciprocal trade policy. In the days following, the S&P 500 fell by over 10%, nearly tipping into bear market territory. On April 9th, just hours before the new tariffs went into effect, a 90-day pause on tariffs was implemented. This pause would make way for what some investors would describe as a fairytale quarter.
For the quarter ending June 30th, the tech-heavy NASDAQ posted an 18% return; this included an all-time high on June 27th. Global equities, as referenced by the MSCI:ACWI ex US, continued in the same, smooth northeasterly direction from the first quarter. Year-to-date this broad, international index is up 17.9%. Even bonds contributed to the return environment, with the Bloomberg Aggregate Index posting a 4% return year-to-date through the end of the quarter.
The favorable return environment was supported by a surge in corporate earnings, surprisingly tame inflation, easing global tensions, and optimism on tax policy. These pieces all fell into place like a game of Tetris. Over 75% of S&P 500 companies beat earnings expectations. May inflation came in lower than expected with a 12-month inflation rate of 2.4%. The Israel-Iran conflict seems to have dissipated and on July 4th, President Trump signed The One Big Beautiful Bill into law.
Patiently observing aggressive, inflationary fiscal policy is Federal Reserve Chair, Jerome Powell. Known for his methodical decision-making, Powell maintains his data-dependent, pragmatic approach to rate cuts. His task is to keep inflation in check without triggering a spike in unemployment. For now, this means holding rates steady, while signaling that rate cuts are still a possibility later this year.
At the start of 2025, Cornerstone shared forward-looking capital market expectations with its clients. For the calendar year, the median modeled rate of return for a 60% equity portfolio was expected to be 6.8%. At the mid-year mark, a balanced portfolio was already north of 6%. In the 3rd quarter, Cornerstone will be working with its clients to preserve some of the gains from the first half of the year. This may mean trimming equity exposure, leaning into safer asset classes, or raising cash in anticipation of future liquidity needs.
Thank you for your continued trust and support. We hope you are enjoying the summer.
Securities offered through M Holdings Securities, Inc. a registered Broker/Dealer, Member FINRA/SIPC. Investment advisory services offered through Cornerstone Advisors Asset Management, LLC which is independently owned and operated.
This material is prepared by Cornerstone Advisors Asset Management, LLC (“Cornerstone”) and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of July 2025 and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Cornerstone to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Cornerstone, its officers, employees or agents. This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.
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