We hope everyone is having a nice summer so far. It’s hard to believe the second quarter is behind us and we’re over halfway through 2025. This year has been anything but “average.” In early April, President Trump's sweeping "Liberation Day" reciprocal tariff announcements triggered the worst two-day selloff in U.S. equities since the pandemic. But just as quickly, a 90-day tariff reprieve and the exclusion of key tech products from the most aggressive levies helped stabilize U.S. markets. As a result, just one week after the two-day free-fall, the S&P 500 posted a historic single day gain of +9.5%, its third-largest single-day gain on record, setting the tone for a more constructive May and June.
While we believe Big Tech continues to offer secular growth opportunities, broader market valuations appear stretched at quarter end. In addition, earnings expectations for the second half of the year could be vulnerable to downward revisions if tariffs and trade weigh on demand. Thus, maintaining a cautious but balanced view of growth and risks as the second half gets underway is, in our view, a prudent approach for tactical investors. Nevertheless, we believe investors should see additional clarity on key market overhangs in the third quarter as trade, tariff, and economic/profit impacts become more visible in hard data.
Importantly, corporate profitability in the second half, namely across Technology, is expected to remain strong. As was the case in the first half, Technology and Tech-related businesses associated with the artificial intelligence theme are projected to be large drivers of earnings growth in the third and fourth quarters. In our view, this will be a key ingredient in helping justify elevated stock valuations across the broader S&P 500, and where the near-term buying opportunity in AI-related stocks created in early April has closed significantly.
Bottom line: Markets proved resilient in the face of geopolitical shocks and trade uncertainty in the first half, largely because economic and profit conditions stood on solid footing. As the second half begins, equity investors are pricing in a benign inflation, growth, and trade environment, which is a risk if the second half doesn't go quite as scripted. For now, investors appear comfortable reserving judgment, waiting to see whether the second half of the year will bring clarity or further complexity. Maintaining a disciplined and well-constructed investment approach that doesn't lean too bullish or too bearish is a solid way to head into Q3, in our view.
As always, if any questions come up or you would like to discuss any of the investment strategies in further detail, please don’t hesitate to reach out.
*All facts and figures were taken from Before The Bell (7/07/2025) and the July Monthly Market Recap published 7/03/2025
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