Q2 2025 Review & Outlook
by Chris Broderick Research & Portfolio Strategy Director
Tariff Reduction and Solid Growth. Power an Impressive Market Rebound in Q2
Market volatility spiked in Q2 as the S&P 500 fell sharply in early April following the announcement of sweeping reciprocal tariffs. However, those initial losses were gradually reversed over the quarter as tariff rates were reduced, economic growth remained resilient, and inflation stayed low. This combination of factors helped the S&P 500 reach a new all-time high and close the quarter with solid gains.1
The quarter began on a negative note when President Trump announced significant tariffs on nearly all U.S. trading partners on April 2. The proposed tariffs exceeded market expectations, sparking fears of a trade war and triggering a sharp sell-off in equities. Stability was restored when the administration introduced several measures to mitigate the impact of the crisis. A week later, it announced a 90-day delay during which most tariff rates would be capped at 10%—much lower than the reciprocal rates. Further exemptions were introduced for key imports including smartphones, semiconductors, pharmaceuticals, and computers.2 These developments gave investors some confidence that the trade war would not trigger a recession, and the market ended April with only minor losses.
Momentum picked up in May after Treasury Secretary Scott Bessent announced a meeting with Chinese trade officials in Geneva. Investor optimism increased, and the meeting led to a significant reduction in tariffs on Chinese imports, from 145% to approximately 30%. That reduction, combined with continued economic strength, alleviated fears of a trade-war-induced recession, and the S&P 500 extended its rally.3 Later in May, the Court of International Trade ruled the administration's tariffs illegal under the statute used to justify them. Although the ruling was immediately appealed and a final decision is expected in Q3, the development raised the possibility that the tariffs could be invalidated altogether, further fueling market gains.
The rally continued in June, although the market’s focus shifted from trade policy to geopolitics after Israel launched attacks on Iranian nuclear and military targets. The resulting tensions caused a temporary spike in oil prices, pausing the rally in mid-to-late June. However, a swift ceasefire—following U.S. strikes on Iranian nuclear sites—led to a sharp drop in oil prices. This, combined with rising expectations for interest rate cuts in the second half of the year, propelled the S&P 500 to fresh all-time highs by month-end.4
Looking ahead, markets enter Q3 on firm footing, with the S&P 500 at record highs despite larger-than expected tariffs on U.S. imports, increased policy uncertainty, and escalating tensions in the Middle East. While this resilience is impressive, investors should not become complacent about the current situation.5
Risks to Monitor
1. Tariffs: Markets currently assume tariffs will remain stable, but there’s no guarantee. Global tariff rates
are at multi-decade highs, and their full economic impact in the coming months remains uncertain.
Risks of a tariff-driven slowdown or stagflation (slower growth with rising inflation) cannot be ruled out.
2. Geopolitics: While recent conflicts haven’t rattled markets significantly, risks remain elevated. Any
move by Iran to disrupt global oil production or transit could push oil prices higher, reigniting concerns
about slowing growth and inflation. An escalation into broader regional conflict would likely increase oil
prices and weigh heavily on stocks and bonds.
3. Monetary Policy: Investors expect two interest rate cuts from the Federal Reserve before year-end.6
However, the unknown impact of tariffs on economic growth and inflation makes rate cuts in 2025 far
from certain. If the Fed holds rates steady, it may signal concern about inflation—or limit its flexibility in
a downturn—potentially pressuring markets.
We remain vigilant to potential risks that may impact both the economy and your portfolio, and appreciate your continued confidence. Our entire team remains dedicated to helping you navigate this market environment and keeping your financial plan on track.
Please do not hesitate to contact us with any questions, comments, or to schedule a portfolio review.
1https://paralleladvisors.box.com/v/Q32025EconIndicatorsandReturns
2 https://www.msn.com/en-us/money/markets/trump-s-sudden-tariff-exemptions-on-key-tech-imports-remove-a-doomsday-scenario-for-the-industry-top-analyst-says/ar-AA1CO0il
3https://www.forbes.com/sites/dereksaul/2025/06/03/deutsche-bank-upgrades-us-stock-rating-on-trumps-tariff-relents-as-taco-trump-gains-popularity/
4 https://paralleladvisors.box.com/v/Q32025EconIndicatorsandReturns
5 https://paralleladvisors.box.com/v/Q32025EconIndicatorsandReturns
This material is provided for informational purposes only and should not be construed as investment advice. Different types of investments involve varying degrees of risk. Discussion or information contained in this presentation does not substitute personalized investment advice from Parallel or another professional advisor of your choosing. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of Parallel Advisors, LLC (“Parallel”). Parallel cannot and does not provide warranties nor representations as to the reliability or accuracy of the content it shares.
