Q2 Market Update: Staying on the front foot in 2025

Tariff tensions and escalating conflict in the Middle East have triggered volatility throughout the second quarter of 2025, resulting in dramatic declines and record-breaking highs.

In a recent video update, Portfolio Manager, Madhushree Agarwal, discusses how our portfolios have responded to the changing market environment, and how we’re placed to maximise the opportunities that 2025 still has in store.

Filmed on Thursday 10 July 2025.

For insight and reflection on the latest market movements, please refer to the below.

Watch: What's causing noise in the markets and what lies ahead for investors?
Tom Caddick, Chief Investment Officer.

Watch: Investment Markets Q&A - July 2025
Tom Caddick, Chief Investment Officer.

Q2 2025 Market Commentary: a comprehensive breakdown of Q2 investment markets from our colleagues at Nedgroup Investments.

The second quarter of 2025 was marked by sharp swings in sentiment, and surprisingly resilient asset returns. Despite one of the most volatile starts to a quarter in recent memory—triggered by a sweeping escalation in global tariffs—major equity markets recovered strongly, supported by solid economic data, an easing of trade tensions, and a temporary reprieve in inflation concerns.

Markets were volatile from the outset when President Trump unveiled a wide-ranging tariff programme far exceeding market expectations on the 2nd April, with baseline rates of 10% across the board, and significantly higher levels targeting China (34%), Japan (24%), and the EU (20%). The announcement sent global markets into a tailspin with the S&P 500 suffering its fifth-largest two-day fall since World War II, while longer-dated Treasuries sold off sharply.

However, the turmoil was short-lived. A 90-day delay for non-retaliating countries, announced on April 9, prompted a dramatic rebound in risk assets. The S&P 500 surged +9.5% on the day, its best single-session performance since the depths of the Global Financial Crisis, while bond markets stabilised, albeit at higher yield levels. Sentiment improved further in May after the US and China unexpectedly agreed to a temporary rollback of tariffs, easing concerns about a near-term recession. Market relief was compounded by a solid April jobs report, which showed nonfarm payrolls rising by 177,000.

Despite continued noise around trade, including a proposed 50% tariff on the EU, later delayed, and legal challenges to the White House’s tariff authority, markets proved resilient. The Dollar weakened notably, posting its worst first-half performance since 1973, while US equities continued their march higher. Investors appeared reassured by a combination of constructive US-China talks and broad-based economic stability. US and European flash Purchasing Managers’ Indexes (PMIs) for June remained in expansionary territory, and Germany’s Ifo business climate index hit a 12-month high.

Geopolitical risk flared in June after Israel launched airstrikes on Iranian nuclear facilities, sparking a retaliatory exchange involving missile strikes on a US base in Qatar. Oil markets responded swiftly, with Brent Crude spiking over 7% in a single session, the largest daily move since 2022. However, tensions de-escalated quickly. A ceasefire was brokered less than two weeks later, helping oil prices retrace their gains and allaying fears of a wider regional conflict.

Fiscal concerns also returned to the fore. Moody’s downgraded the US sovereign credit rating from Aaa to Aa1, citing rising deficits and political gridlock. This coincided with the narrow passage of a new tax bill through the House, aimed at extending prior Trump-era cuts. While still pending in the Senate, the proposal added fuel to long-end yield pressures.

How has this translated to financial markets?

Given this backdrop, equities were well supported, with the global index up by +9.3%, with the US (+11.2%) and Asia Ex-Japan (+8.5%) leading the way whilst Europe ex-UK (+3.0%) and UK (+2.4%) lagged after a strong Q1. In terms of equity styles, growth stocks (+17.3%) outperformed value (+6.1%), and small-cap stocks (+12.5%) rose more than large caps (+9.3%). There was also wide variation in sector performance, with IT (+23.3%) and Communication Services (+17.9%) being the strongest two sectors, while Healthcare (-3.5%) and Energy (-3.5%) lagged significantly.

Fixed income markets were positive supported by yields falling. Looking at the details, global government bonds (+1.5%) finished the quarter above water, but lagged Investment Grade Credit (+2.0%), Global High Yield (+3.1%) and global emerging market debt (+3.1%).

In the real assets space, global real estate (+5.1%) and global infrastructure (+8.5%) were well bid, due to their sensitivity to fall interest rate. Finally, Commodities (-3.1%) had a challenging quarter despite Gold (+5.2%) being a clear stand out, supported by geopolitical tensions and purchases from central banks.