Q2 2025 Market Outlook: Insights and Key Takeaways

At Linscomb Wealth, our mission is to keep you informed and prepared for the opportunities and challenges that shape your financial journey. As we end our second quarter of 2025 and kick off the third, we’re pleased to share key insights from our investment team that provide clarity and direction for the road ahead.

Market Recovery Update: Strong Rebound Amid Geopolitical Tensions
At Linscomb Wealth, we keep you informed about market developments that we believe matter to your financial future. Our recent investment committee meeting, moderated by Chairman Walter Christopherson, covered important trends shaping today’s market environment. The committee included Chief Investment Officer Ryan Patterson, Director of Investment Strategy Corbin Grillo, and Senior Wealth Manager Lauren Rich.

Strong Market Recovery Continues
The second quarter theme was “expect the unexpected.” Despite major challenges including significant tariff announcements on Liberation Day, war in the Middle East, and a US debt downgrade by Moody’s, markets delivered surprising positive returns.

The market turnaround across global markets has been notable:

• US Large-Cap: S&P 500 up over 8% for the quarter, reaching new all-time highs by quarter-end
• US Small-Cap: Also up over 8% for the quarter
• International Developed Markets: Up almost 12% for the quarter
• International Emerging Markets: Up about 12% for the quarter

The S&P 500 experienced a 15% drawdown in about a week, followed by one of the fastest recoveries ever seen, with the market reaching new all-time highs by the end of the quarter. Year-to-date, the S&P 500 is up about 5%, but experienced a 19% drawdown during the quarter – historically not out of the norm, just unusually quick in both direction and recovery.

Chief Investment Officer Ryan Patterson noted, “This recovery shows the resilience of markets and the strength of corporate fundamentals, even in the face of significant geopolitical and policy uncertainties.”

Three Factors Behind the Rebound
Corbin Grillo identified three primary factors supporting the market rebound that changed investor sentiment:

• Tariff Policy Rollback: The rollback of the extreme April 2nd tariff announcements was likely the primary catalyst for recovery. While tariffs will still increase from current levels, they won’t be as severe as initially feared.
• Improved Corporate Earnings: Earnings came in better than expected across major sectors, with technology stocks leading the recovery after falling more than 10% in the first quarter.
• Sustained Economic Growth: The global economy continued to grow, supporting market fundamentals.

“Strong earnings growth combined with clearer trade policy has helped equity valuations,” Corbin said. “Markets respond well when policy uncertainty drops and corporate fundamentals improve.”

Sector Performance: Technology Leads Recovery
From a sector perspective, the second quarter saw a complete reversal of first quarter trends. Technology and communication services – sectors associated with the AI trade that performed poorly in Q1 – came roaring back. Technology stocks were up over 20% in the second quarter after falling more than 10% in the first quarter.

International Markets: Back-to-Back Quarters of Outperformance
The strong international returns represent the first back-to-back quarters of international asset outperformance in some time. Three factors explain this trend:

• Attractive Valuations: International stocks trade at a 14 times price-to-earnings ratio compared to 22 times for US stocks. This discount means international companies don’t need great news to perform well – just decent growth can drive strong performance.
• Currency Effects: The Bloomberg Dollar Index shows significant dollar weakness this year, which translates into higher returns for international assets when converted back to dollars.
• Global AI Supply Chain: While the US is ground zero for AI innovation, the semiconductor supply chain is global. The US accounts for only 14% of semiconductor manufacturing, leaving 86% elsewhere (heavily concentrated in Asia and Europe). Investors are recognizing that the AI trade extends beyond US borders.

Federal Reserve and Monetary Policy
Lauren Rich provided updates on Fed policy: Inflation has continued to decelerate to about 2.3% year-over-year, but the Fed funds rate remains about 2% higher at current levels. While uncertainty around tariffs and trade policy has kept the Fed on hold, interest rate cuts are expected in the second half of the year as policy uncertainty diminishes.

Employment Report Confirms Healthy Labor Market
The US unemployment rate stands at 4.2%, remaining steady after a slight increase in 2023 that was mainly due to more people entering the workforce rather than job losses. Since the US consumer drives about 70% of growth through spending, continued employment stability supports economic growth expectations.

Looking Ahead: Key Factors to Watch
The Investment Committee highlighted several areas of focus for the second half:

Trade Policy: While there’s more certainty on tariffs following the rollback from Liberation Day levels, tariff rates will still increase significantly from current levels. The Trump administration’s budget legislation is next on the agenda.

Budget Legislation: There are countervailing forces at play. Extension of lower tax rates would be positive for markets and the economy, but concerns exist about persistent deficits and federal debt without new revenue sources.

Corporate Earnings: Despite legislative noise, the focus remains on corporate performance. Profit growth expectations have come down slightly but analysts still expect solid growth for the rest of this year and into next.

Economic Data: The team continues monitoring key indicators, particularly employment data, as the foundation for sustained economic growth.

What This Means for You
Think about how this market recovery fits with your financial goals and long-term plans. The second quarter demonstrated that markets can recover quickly from significant challenges when policy uncertainty diminishes and corporate fundamentals remain strong.

Our team continues watching market conditions and economic data that could affect portfolio positioning, particularly:

• The evolution of trade policy and budget legislation
• International market opportunities given attractive valuations
• Sector rotation trends as technology leads recovery
• Federal Reserve policy decisions in the second half

Contact your Linscomb Wealth advisor with questions about how these market developments apply to your situation. We’re here to help you navigate these changing market conditions.

Stay Informed with Linscomb Wealth
Markets change quickly and staying informed helps build financial confidence. Chairman Walter Christopherson noted this was “certainly one of the most interesting quarters” in his career, emphasizing the importance of staying prepared for whatever surprises the third quarter may bring. We invite you to Watch our Q2 Market Update Video  for our investment team’s complete analysis.

For more detailed analysis or to schedule a portfolio review with your advisor, please contact our team today.