2025 2nd Quarter Market Recap

Domestic and global equities have surged after a very rough March and early April. The S&P 500 (SPY) is currently up more than 10% in Q2, with just one full trading day left on Monday. The Tech-heavy Nasdaq 100 (QQQ) is up much more at 17.4%, while the Semis (SMH) are up more than 30%.

As good as it has been in the US, it has been an even better first half and second quarter for much of the world. The All-World ex US ETF (CWI) is up 18.5% on the year versus a gain of 5.7% for the US (SPY), and countries like Germany (EWG), Italy (EWI), Mexico (EWW), and Spain (EWP) are sitting on 30%+ YTD gains.

As a reminder, quarterly rallies this strong aren't the norm, so enjoy it, but don't get too confident heading into Q3.

After experiencing a 19% pullback during the market's tariff tantrum in April, the S&P 500 has been on a V-shaped recovery to hit fresh all-time highs. A new closing high on Friday would extend the current bull market to 989 days. There have been nine other bull markets that have lasted more than 1,000 days, and while year three of these long bull markets is typically choppy, that's usually just a recharge for further gains in years four and beyond. Rallies beget rallies, and a bull's a bull.

After a rough stretch in 2022 and 2024, "buy the dip" is back in 2025. Through mid-June, the S&P's performance on the day after down days put 2025 on pace to be the best year for this measure since at least 1993, when SPY began trading.

The technical picture for semis has improved dramatically in recent weeks. Regarding price and relative strength, the downtrend from last summer's high has been broken, and the index took out its high from January (the chart below). Nvidia (NVDA) is the sector's largest and most important component, and the stock made a new high as it just recently broke a pattern of large intraday negative reversals that capped off prior rallies (red arrows in right chart below). NVDA may be the largest component, but the rally in the SOX has been broad, as the average performance of its components since the April low has been a gain of 45.8%, and all but three members are outperforming the S&P 500.

While the mainstream consensus seemed to think inflation would run rampant this year, that hasn't happened. YoY CPI has returned to the 2s (even though the Fed remains stubbornly tight), and MoM CPI readings have returned to a stable range similar to what we saw throughout the 2010s.

As shown in the chart below, CPI has come in weaker than expected for four months amid all the Trump tariff drama.

The AI Boom continues in full force, and the Nasdaq since ChatGPT's release continues to track closely with the mid to late 1990s analogue of the Dot Com Boom that began with the release of the Netscape web browser in December 1994. As shown below, there's still a considerable runway if this analogue continues. As shown on the right, Google searches for "AI" and "ChatGPT" have shown no slowdown.

Similar to the weakness we typically see in year three of long bull markets, year one (and two)

of Presidential terms has historically been weaker relative to years three and four. The year one weakness has traditionally come from Republican Presidents rather than Democrat Presidents, With the S&P seeing a median decline of 9.7% in year one of Republican terms going back to 1928. I will let you know this year's returns at the end of the year, and how Trump's first year compares.

(1) Charts by Bespoke.com. 

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