Quarterly Market Review

Markets continued their unpredictable ways in the second quarter of 2025. From early-year highs to April volatility and a midyear rebound, investors navigated shifting interest rate expectations, global policy moves, and style rotations. Here’s an overview of key themes across stocks, bonds, and global markets and what it all might mean for the road ahead.

What We'll Cover

Key Takeaways

Stocks posted modest gains despite a choppy ride, with early-year highs followed by April pullbacks and a midyear rebound.

International and value stocks outperformed, reminding investors of the benefits of global and style diversification.
Bonds delivered steady returns as inflation eased and the Fed paused rate hikes—though future cuts remain uncertain.
Cash yields are still attractive, but reinvestment risks may grow if interest rates begin to fall later this year.

What the Headlines Don’t Show

MSCI All Country World Index with selected headlines from 2Q25

These headlines are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a long-term perspective and avoid making investment decisions based solely on the news.

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Market Summary

Returns as of June 30, 2025

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Halftime Highlights

Stocks posted modest gains – but with a bumpy ride. Stock markets ended the first half of the year in positive territory, though the path wasn’t smooth. After reaching early highs, U.S. stocks pulled back sharply in April before rebounding in May and June. Overall returns were moderate, supported by easing inflation, resilient corporate earnings, and investor optimism about potential interest rate cuts.

Global diversification added value. International stocks outperformed their U.S. counterparts for the first time in a while, partly due to a weakening U.S. dollar. A softer dollar makes overseas returns more attractive for U.S. investors, reminding us why we diversify across borders – even when it’s not in vogue.

Value stocks led, growth lagged. Companies trading at lower valuations (value stocks) outperformed growth-oriented names, which had dominated the market for much of the past decade. This shift may reflect investor caution, as higher interest rates and tighter financial conditions tend to favor steadier, cash-flow-generating businesses.

Bonds delivered steady, positive returns. After two challenging years, bonds provided much-needed stability. Yields remained relatively high, and prices recovered modestly as the Federal Reserve paused its rate hikes. With inflation cooling, bond markets appear to be regaining their footing – and are once again playing a meaningful role in portfolios.

Cash and short-term yields remain attractive – for now. Many investors continue to park money in high-yield savings, CDs, and money market funds. While those returns are appealing in the short run, reinvestment risk looms as expectations grow for rate cuts later this year or in early 2026.

Equity valuations appear stretched. Stock prices have risen faster than earnings, and compared to bond yields, the expected premium for taking equity risk is now unusually low. Historically, this has signaled more muted forward returns for stocks – suggesting a need for realistic expectations and thoughtful diversification.

The Fed has paused, but the direction is uncertain. With inflation gradually cooling and economic growth slowing, the Federal Reserve held off on further hikes in the first half of the year. Vanguard and other forecasters expect the Fed may begin easing later this year, but ongoing global uncertainty – particularly around trade policy and employment – means rate cuts are not guaranteed.

Economic growth is slowing, but still positive. Vanguard projects moderate growth for the remainder of 2025, with U.S. GDP expected to expand around 1.5%, and global growth led by emerging markets. Inflation is expected to remain above the Fed’s target, but well below the peak reached in 2022.

The four most expensive words in the English language are this time is different.

— John Templeton

Looking Ahead

Macroeconomic Themes to Watch

The Path and Impact of Rate Cuts: The Federal Reserve’s next move is top-of-mind. Most officials expect at least one rate cut in 2025 but are wary of inflation persistence – especially from tariffs. A few are open to a July cut, others think a longer wait is prudent. The European Central Bank may deliver one more cut in September before going on hold. Expect global yields to move with each fresh data release or central bank pronouncement.
Tariffs and Trade Headwinds: While some tariff headlines have faded, their full economic impact may just be materializing. U.S. tariffs on imports, ranging from copper to pharmaceuticals and sweeping measures on Brazil and other countries, drive up costs, pressure margins, and challenge global supply chains, raising both inflation and policy risk for investors.
Earnings Growth vs. Valuation Risks: Stock markets are counting on earnings growth to justify elevated valuations. With some second-quarter downgrades already behind us, the focus is on whether 2025–2026 results can deliver on expectations. Margins are under watch as companies face higher input costs, labor expenses, and currency volatility.

What Should Investors Expect for the Remainder of 2025?

Bonds: Expect continued volatility and range-bound trading as markets digest each inflation report and central bank stance. Should inflation (or tariffs) persist, yields may remain stubbornly high. If the Fed and other major central banks begin lowering rates, bonds could rally, especially at the long end.
U.S. Stocks: While fundamentals remain supportive, risks from over-valuation and lingering tariff impacts suggest a more measured advance. Leadership may rotate among sectors and companies able to pass on higher costs, manage supply chains, or benefit from global stimulus.
International and Emerging Markets: International developed markets are likely to benefit from stabilizing economic activity and possible trade deals. Emerging markets will remain sensitive to further tariff announcements, U.S. dollar strength, and capital allocation shifts due to index changes.

Why Diversification Still Wins

Quarterly results give us a snapshot of where we’ve been – but this chart zooms out to show something bigger: why diversification matters.

Each block shows how different asset classes have performed year by year. And the pattern? There isn’t one. What’s on top one year often falls the next. Commodities led in 2022, then slid near the bottom in 2023. Real estate, emerging markets, U.S. stocks – they’ve all taken turns leading and lagging.

That’s the nature of markets. Instead of trying to predict what’s next, we focus on building portfolios that spread risk – so you stay balanced through the ups and downs, capture opportunity as it comes, and don’t get caught chasing yesterday’s winners.

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This quarter was a clear reminder of the value of staying patient. Investors who maintained their focus on the long term, rather than reacting to every headline, saw that discipline rewarded them. In markets like these, the fundamentals still matter – and so does perspective.

Disclosures

All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. The content on this blog is for informational and educational purposes only and should not be construed as personalized financial advice, tax advice, legal advice, an offer or solicitation to buy or sell any security, or a recommendation to pursue any specific investment strategy. The information provided is general in nature and may not be suitable for your individual circumstances.

Olio Financial Planning, LLC (“OLIO”) is a registered investment adviser with the United States Securities and Exchange Commission, domiciled in Virginia. Investment advisory services are only provided to investors who become OLIO clients under a written agreement. Past performance does not guarantee future results, and all investments involve risk, including the potential loss of principal.

Nothing contained herein should be interpreted as a guarantee of any specific outcome. Forward-looking statements or projections are based on assumptions and current market conditions, which are subject to change without notice. Actual results may differ materially.

You should consult your own financial, legal, tax, or other professional advisors before making any financial decisions. OLIO does not guarantee that the information presented is current, accurate, or complete, and assumes no responsibility for any errors or omissions.

Quarterly Market Review