Quarterly Insights – July 2025

Relaxed but Ready: Staying Alert Amid Summer Calm

As we settle into the leisurely rhythms of summer, many of us find ourselves basking in the sun, wading into the waters, and enjoying quality time with our families and friends. Similarly, some market participants also appear to be falling into an attitude of ease and complacency. With markets exhibiting remarkable resilience to negative macro events over the last several years, some investors appear to be letting risks slip from focus for now. Yet, much like any experienced beachgoer knows, neglecting to account for underlying dangers – such as sudden weather changes or a shifting tide – can leave one unprepared. 

The second quarter began with significant volatility, as sweeping reciprocal tariffs initially unsettled the markets. This brief but intense correction reminds us that risks can lurk beneath a tranquil surface. And while swift action by policymakers helped de-escalate tensions and ease concerns, allowing markets to recover, we remain a balanced mix of cautiously optimistic. We acknowledge and continue to attempt to capitalize on tranquil market periods, while simultaneously remaining vigilant and preparing for the risks that could materialize. 

At Professional Planning Group, our approach mirrors the prepared beachgoer who enjoys the sun and the waves, but remains cognizant of clouds forming on the horizon, the rising intensity of the sun, and changes in the pull of the waves. Likewise, in our investment strategies we have continued to enjoy the strong markets, while continuously assessing and attempting to mitigate identified risks, in an effort to build adaptable portfolios. 

Let’s dive deeper into the events of the past quarter and what they mean for your investments as we head into the second half of the year. 

Market volatility spiked in the second quarter as the S&P 500 dropped sharply in early April following the announcement of sweeping reciprocal tariffs, although those initial losses were slowly and steadily recouped over the remainder of the quarter as initial tariff rates were reduced while economic growth proved resilient and inflation stayed low, allowing the S&P 500 to hit a new all-time high and finish the quarter with a strong gain.

The second quarter started with a proverbial thud as, on April 2^nd, President Trump announced sweeping and substantial tariffs on virtually all U.S. trading partners. The tariff amounts were significantly larger than markets expected and their announcement sparked fears of a trade-war-driven economic slowdown, which hit stocks hard as the S&P 500 dropped more than 10% in the days following the tariff announcement. However, that low in the index on April 8^th turned out to be the low for the quarter as the rest of April saw the administration take numerous steps to reduce the practical impact of those announced tariffs. A week after reciprocal tariffs were announced, the administration declared a 90-day delay where tariff rates on most trading partners would be just 10%, far below most reciprocal tariff rates. That delay was then followed by more steps to reduce the tariff burden, including important exemptions for key imports such as smartphones, semiconductors, pharmaceuticals and computers. The delay in reciprocal tariff rates and key category exemptions gave investors some confidence that the trade war would not automatically cause a recession, and that optimism combined with a solid first quarter earnings season helped the S&P 500 rally throughout the remainder of April and close with just a slight loss, down 0.68%.    

The market rebound accelerated in May as Treasury Secretary Scott Bessent announced he would be meeting with Chinese trade officials in Geneva early in the month. That boosted investor expectations for more tariff relief and those hopes were fulfilled as the meeting resulted in a dramatic reduction in tariffs on Chinese imports from 145% to approximately 30%. That tariff reduction combined with still-solid economic growth further eroded investor concerns that tariffs would cause a recession and the S&P 500 extended its rebound. Earnings also contributed to the rally thanks to strong results from tech bellwether Nvidia (NVDA), which reminded investors of the growth potential of artificial intelligence (AI). Finally, in late May, the Court of International Trade ruled the administration’s tariffs were illegal under the law used to justify the duties. The case was appealed immediately and a decision should come in the third quarter, but the initial ruling raised the prospect that tariffs could be eliminated almost entirely by the courts in the coming months. That decision further strengthened the belief that tariffs would not derail the strong economy and the S&P 500 turned positive year to date and finished May with very strong gains, up 6.29%.  

The rally continued in June although trade headlines, which had driven market moves for the first two months of the quarter, took a back seat to geopolitical concerns after Israel launched a massive attack on Iranian nuclear and military facilities. The hostilities between the two rivals caused oil prices to temporarily spike and that halted the rally in mid-to-late June, as investors again had to consider the prospect of rising oil prices hurting economic growth and boosting inflation. However, that volatility was limited, as following U.S. strikes on Iranian nuclear facilities, a ceasefire was agreed to between Iran and Israel and oil prices dropped sharply, turning negative for the quarter. That decline, combined with rising expectations for rate cuts in the second half of the year, pushed the S&P 500 to new all-time highs in the final days of June.  

In sum, the stock market completed an impressive rebound from the steep declines of early April, as steps by the administration to ease the tariff burden helped to boost investor confidence while corporate earnings remained strong and economic growth proved resilient, yet again, even in the face of geopolitical uncertainty and elevated policy volatility.  

Second Quarter Performance Review

The gains in the S&P 500 in the second quarter were particularly impressive considering the intense selling witnessed in early April, as the market rebound was broad and the majority of indices, sectors and factors logged a positive return for the quarter.  

By market capitalization, large caps outperformed small caps in Q2, as they did in the first quarter. A lack of Fed rate cuts, generally elevated bond yields and some soft economic data late in the second quarter weighed on small caps, although they still finished the quarter with a positive gain.   

From an investment style standpoint, growth massively outperformed value in the second quarter, as tech-heavy growth funds attracted value-seeking investors following the April declines. Tariff reductions and exemptions also boosted the outlook for major tech firms while solid earnings from AI bellwethers Nvidia (NVDA) and Oracle (ORCL) helped renew AI enthusiasm amongst investors. Value funds, meanwhile, were weighed down by weakness in energy shares but still managed a slightly positive return for the quarter.

On a sector level, seven of the 11 S&P 500 sectors finished the second quarter with positive returns. The best-performing sectors in the second quarter were the AI-linked technology and communications services sectors as well as the industrials sector. All three sectors benefited from tariff reductions and exemptions as many companies in these sectors have strong international businesses. 

Turning to the sector laggards, energy and healthcare posted solidly negative returns for the quarter, as both were pressured by negative industry-specific news. For energy, volatility in oil prices (and a lack of a sustainable rally despite the Israel-Iran conflict) weighed on energy producers, as did general fears of an economic slowdown. For healthcare, uncertainty over pharmaceutical tariffs as well as a legislative focus on reducing prescription drug costs weighed on healthcare stocks.        

Source: YCharts

Internationally, foreign markets outperformed the S&P 500 for most of the quarter, although the late June surge in the S&P 500 saw that index pass both emerging and foreign developed indices from a performance standpoint. Emerging markets outperformed foreign developed markets due to substantial de-escalation in the U.S./China trade war as well as some encouraging Chinese economic data. Foreign-developed markets also posted strong returns for the quarter thanks to falling interest rates and generally resilient economic growth.  

Source: YCharts

Commodities saw slight declines in the second quarter due to weakness in oil prices, although a continued rally in gold kept losses for most commodity indices modest. Gold added to the already-impressive YTD returns, aided by the falling dollar (which hit a three-year low in the second quarter) and elevated geopolitical tensions. Oil prices, meanwhile, were volatile but ended the quarter with a modest loss as geopolitical tensions eased following the Israel/Iran ceasefire and in response to some lackluster U.S. economic readings in June.    

Source: YCharts/Koyfin.com

Switching to fixed income markets, the leading benchmark for bonds (Bloomberg U.S. Aggregate Bond Index) realized a modest positive return for the second quarter, as stable inflation readings and some cooling of U.S. economic growth late in the quarter boosted demand for bonds.    

Looking deeper into the fixed income markets, longer-duration bonds outperformed shorter-duration bonds because of the aforementioned stable inflation data and slightly underwhelming economic readings. Shorter-term bonds lagged as the Fed remained in a “wait-and-see” approach to rate cuts given the central bank wants to wait to see the impacts from tariffs on both growth and inflation.  

Turning to the corporate bond market, both investment grade and lower quality “high yield” bonds posted solidly positive quarterly returns. High-yield bonds outperformed investment grade debt, however, as generally resilient economic growth and the promise of looming tax cuts gave investors confidence to reach for higher yield and assume more credit risk.  

Source: YCharts

Third Quarter Market Outlook

The markets begin the third quarter following an impressive first half performance, as the S&P 500 hit a new all-time high despite much-larger-than-expected tariffs on U.S. imports, a dramatic increase in policy volatility and more hostilities in the Middle East.   

While investors expected tariffs and a tougher stance on trade from the new administration, the moves taken in the first half of 2025 exceeded the vast majority of expectations as tariffs were both higher and more far reaching than most analysts expected. But moves by the Trump administration to ease the tariff burden combined with the court decision invalidating reciprocal tariffs boosted market confidence that neither the administration nor the courts would allow tariffs to derail economic growth. That belief helped stocks look past what is still a dramatic increase in tariffs.

Importantly, tariffs matter to the markets primarily because, if not properly executed, they could cause an economic slowdown, or worse, stagflation, where growth slows but inflation rises. Fears of a tariff-induced slowdown or return of stagflation were contributing factors behind the April decline in stocks. Positively, economic data remained mostly resilient throughout the second quarter and there are no major economic indicators pointing to a material slowing of growth or a sudden rise in inflation. That resilient data in the face of tariffs and geopolitical turmoil contributed to the market rebound in the second quarter.    

Finally, geopolitical risks undoubtedly rose with direct conflict between Israel and Iran (including U.S. involvement in the war) and no progress on a ceasefire on the now three-year-long war between Russia and Ukraine. However, the market views these conflicts as largely isolated and not at risk of spreading into a larger regional war that could disrupt oil production or the global economy. Because of that, markets largely ignored the increase in geopolitical tensions during the quarter.  

However, while the market was impressively resilient over the past three months, it would be a mistake for investors to become complacent in this environment, because there remain a lot of risks facing the economy and markets.

First, while the market has assumed that tariffs won’t rise substantially from current rates, there’s no guarantee of that. To that point, the deadline for the reciprocal tariff delay is July 9^th and if that deadline is not extended, we could see tariff rates on major trading partners surge once again. Regardless, the reality is that global tariff rates are at multi-decade highs and it’s still uncertain how that will impact the economy in the months ahead (so risks of a tariff-induced slowdown or rise of stagflation can’t be dismissed).

Turning to geopolitics, while the various conflicts have not negatively impacted global markets, risks remain elevated. If Iran takes steps to disrupt global oil production or transit, that will boost oil prices and create a new headwind on markets. Similarly, if these isolated conflicts begin to spread into larger regional conflicts that will also lift oil prices and weigh on stocks and bonds.  

Finally, investors still expect two interest rate cuts from the Federal Reserve between now and year-end; however, the unknown impact from tariffs on economic growth and inflation make rate cuts in 2025 far from certain. If the Federal Reserve does not cut rates in the coming months, that will increase concerns about an eventual economic slowdown and that could weigh on markets.  

Bottom line, markets have been impressively resilient so far this year, but as we start the second half of 2025 there remain numerous, potentially significant risks to the markets and the economy and we will not let the market’s resilience create a sense of complacency.  

To that point, at Professional Planning Group, we are committed to helping you effectively navigate this investment environment. Successful investing is a marathon, not a sprint, and even intense volatility is unlikely to alter a diversified approach set up to meet your long-term investment goals.

Therefore, it’s critical for you to stay invested, remain patient, and stick to the plan, as we’ve worked with you to establish a unique, personal allocation target based on your financial position, risk tolerance, and investment timeline.

We remain focused on both opportunities and risks in the markets, and we thank you for your ongoing confidence and trust. Please rest assured that our entire team will remain dedicated to helping you successfully navigate this market environment.

Please do not hesitate to contact us with any questions, comments, or to schedule a portfolio review.

On Behalf of the PPG Investment Committee,

David G. Aballo, CFA

Director of Investments and Trading

Professional Planning Group

9 Granite Street

Westerly, RI 02891

(401) 596-2800

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

One cannot invest directly in an index. Bond prices and yields are subject to change based upon market conditions and availability. 

If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing involves risk and investors may incur a profit or a loss.

Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors.

The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal.

The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index.

The S&P MidCap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P500®, measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada.

The EAFE consists of the country indices of 22 developed nations. 

The MSCI ACWI ex USA Investable Market Index (IMI) captures large, mid and small cap representation across 22 of 23 Developed Markets (DM) countries (excluding the United States) and 24 Emerging Markets (EM) countries. With 6,211 constituents, the index covers approximately 99% of the global equity opportunity set outside the US.

The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index’s three largest industries are materials, energy, and banks. 

The NASDAQ-100 (^NDX) is a stock market index made up of 103 equity securities issued by 100 of the largest non-financial companies listed on the NASDAQ. It is a modified capitalization-weighted index. It is based on exchange, and it is not an index of U.S.-based companies.

The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and non-convertible. The ICE U.S. Treasury 7-10 Year Bond Index is part of series of indices intended to assess the U.S. Treasury market. The Index is market value weighted and is designed to measure the performance of U.S. dollar-denominated, fixed rate securities with minimum term to maturity greater than seven years and less than or equal to ten years. The ICE U.S. Treasury Bond Index Series has an inception date of December 31, 2015. Index history is available back to December 31, 2004. The Barclays Capital Municipal Bond is an unmanaged index of all investment grade municipal securities with at least 1 year to maturity. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index tracks agency mortgage backed pass-through securities (both fixed-rate and hybrid ARM) guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). The index is constructed by grouping individual TBA-deliverable MBS pools into aggregates or generics based on program, coupon, and vintage. The Bloomberg Barclays U.S. Corporate High Yield Bond Index is composed of fixed-rate, publicly issued, non-investment grade debt, is unmanaged, with dividends reinvested, and is not available for purchase. The index includes both corporate and non-corporate sectors. The corporate sectors are Industrial, Utility and Finance, which include both U.S. and non-U.S. corporations. The Bloomberg Barclays U.S. A Corporate Bond Index measures the investment-grade, fixed rate, taxable corporate bond market. It includes USD denominated securities publicly issued by US and non-US industrial, utility, and financial issuers. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. The LBMA Gold Price and LBMA Silver Price are the global benchmark prices for unallocated gold and silver delivered in London. SS&P GSCI Crude Oil is an index tracking changes in the spot price for crude oil. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors.

The views expressed represent the opinions of Professional Planning Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Diversification and asset allocation do not ensure a profit or guarantee against loss. All data provided was obtained through PPG’s subscription to Sevens Research Report.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. www.adviserinfo.sec.gov Past performance is not a guarantee of future results.