Living with volatility
Living with volatility
We don’t anticipate the market roller coaster will get less bumpy in the second half of 2025.
We don’t anticipate the market roller coaster will get less bumpy in the second half of 2025.
07/08/2025
2nd QUARTER 2025 MARKET REVIEW
Stocks plummeted and rebounded
07/15/2025
Thrivent Asset Management contributors to this report: John Groton, Jr., CFA, director of administration and materials & energy research; Matthew Finn, CFA, head of equity mutual funds; Kent White, CFA, head of fixed income mutual funds; and Charles Hofstrom, CFA, senior product specialist
Key points
High volatility
Volatility levels at heights not seen since pandemic affecting both stocks and bonds.
Negative and positive
Gross-domestic product was lowered from expectations, but employment numbers were more positive.
Second-quarter benchmark returns
What mattered in the second quarter
The economy: It was a volatile quarter as investors struggled to assess the impact of President Donald Trump’s economic policies. Weaker consumer and business surveys largely reflected this uncertainty, while a cloudier outlook also was reflected in consensus expectations for economic data. Nevertheless, the core measures of economic activity were generally in line with expectations for an economy that is showing signs of weakening, but is likely to remain resilient. Final first-quarter gross domestic product (GDP) was revised lower to -0.5%, largely due to a rush to import goods ahead of expected tariffs. Retail sales were generally weak while employment data surprised to the upside in June.
Stocks: The benchmark S&P 500® Index fell nearly 20% from its February highs to its early April lows and then sharply rebounded 9.4% in a single day—one of its largest one-day rallies in the last century. Unsurprisingly, volatility—as measured by the CBOE Volatility Index (VIX)—reached levels not seen since the COVID-19 pandemic. Despite high volatility stocks ended the quarter near new highs, driven by robust earnings, delays in implementing the announced tariffs and strong gains in large technology-related companies. The Magnificent 7 rose 18.6% over the second quarter, approximately 14% more than the rest of the companies in the S&P 500 Index.
Bonds: Extreme volatility was not contained to the stock markets. Following the April 2 tariff announcements, 10-year Treasury yields experienced their largest weekly rise in a quarter of a century, while the U.S. dollar steadily eroded, marking its worst start to a year since 1973. Moody’s Corporation downgraded the U.S. government’s credit rating to Aa1 during second quarter, and bond markets increasingly focused on the path of the U.S. fiscal deficit and the outlook for the U.S. dollar. Benchmark 10-year bond yields ended the period essentially unchanged, though the yield curve steepened, with 30-year bond yields rising approximately 0.20%. Investment grade corporate bond spreads were also largely unchanged over the quarter, reflecting strong fundamental and technical factors that provided support to this market. The Bloomberg U.S. Aggregate Bond Index rose 1.21% over the quarter.
For more on the economy and our outlook for the markets, see: Thrivent 2025 Midyear Market Outlook, by Chief Investment Strategist Steve Lowe
The quarter’s key economic data
First-quarter GDP, initially estimated to contract by 0.3% in April, was revised downward to a 0.5% contraction in late June. A surge in imports as consumers and companies attempted to buy goods ahead of anticipated tariffs weighed on the results.
The consumer: Fading confidence and consumption
The Conference Board’s Consumer Confidence Index (CCI) declined in June, reversing a stronger-than-expected gain in May and following a succession of declines in other confidence measures reported across the quarter. Tariffs and their potential impact remain the primary explanation for the decline. While confidence measures do not always lead to a reduction in consumption, retail sales were generally weak over the quarter. April retail sales growth was initially reported at 0.1% month over month but was revised down to -0.1%, while May retail sales fell 0.9%, below expectations for a decline closer to 0.6%.
Employment: Jobs data stayed robust
The unemployment rate fell to 4.1% in June, well below expectations for a rise to 4.3%. However, the data was influenced by a significant decrease in the labor force participation rate (which includes people working and those looking for work), which dropped to 62.3%, its lowest level since 2022. New jobs created in June were above expectations at 147,000, but private payrolls rose only 74,000. Together with the upward revisions to the April and May data, three-month average job growth was 150,000. June’s average hourly earnings increased 0.2% relative to May and up 3.7% from last June, lower than consensus expectations.
Inflation: Higher, as expected
The Core Consumer Price Index (CPI) was stable over the quarter, with each month’s data release largely in line with expectations. However, the Core Personal Consumption Expenditures (PCE) Price Index, the U.S. Federal Reserve’s (Fed) preferred inflation measure, moved higher in May. At 2.7% higher relative to May of last year and 0.2% higher relative to April of this year, both figures were only marginally above expectations, which anticipated some price increases as a result of new tariffs. Nevertheless, the figures remain above the Fed’s target rate, which is a long-term average of near 2%—a level not seen since early 2021.
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How key markets responded
U.S. stocks rebounded
The benchmark S&P 500 Index rebounded from its April lows to set new highs late in the quarter. The index rose 10.94% during the period, lifting its year-to-date gain into positive territory at 6.20%. The information technology and communication services sectors led the rebound as enthusiasm for some of the largest companies in these sectors were supported by a more optimistic outlook for the U.S. economy. The energy sector was particularly weak over the period, falling 8.56%, largely due to the decline in oil prices. The benchmark Russell 2000 Index of small-cap stocks rose 8.11% over the period, while the technology-heavy NASDAQ Composite Index surged 17.75%.
The table below shows the past month, quarter and year-to-date performance results of the 11 sectors:
Corporate earnings projections rose
Corporate 12-month earnings projections for the S&P 500 Index dipped in April but ended the period higher, rising 1.07%, extending their steady climb higher over the past year.
Forward P/E ratios rebounded
The forward 12-month price-earnings ratio (P/E) of the S&P 500 Index rebounded 9.49% over the second quarter, from 20.18 at the end of March to 22.09 at the end of June. A higher P/E ratio means stock valuations are higher relative to their earnings per aggregate share.
The forward 12-month earnings yield, which is the inverse of P/E, fell over the quarter. The 12-month forward earnings yield can be helpful in comparing equity earnings yields with current bond yields. At 4.54%, the forward 12-month earnings yield ended the quarter well above the 4.23% yield offered by 10-year U.S. Treasuries.
International equities: Marginally outperformed the U.S.
The MSCI ACWI ex-USA Index®, which tracks stocks across developed and emerging-market economies across the world (excluding the U.S.) rose 10.95% over the quarter, slightly outperforming the S&P 500 Index which gained 10.57%. This performance was primarily driven by U.S. dollar weakness, as equity index returns in domestic currencies of Europe were significantly lower. Stocks in Asia performed relatively better, supported by the easing of trade tensions late in the quarter.
Treasury bonds: Sensitive to fiscal concerns and the U.S. dollar
Benchmark 10-year Treasury bond yields ended the quarter at 4.23%, largely unchanged from their 4.21% yield at the end of March. However, the yield curve steepened over the period, with the longer-dated 30-year bond yield rising approximately 0.20% on concerns about the outlook for the U.S. fiscal deficit and a weaker U.S. dollar weighing on foreign investors’ appetite for funding the U.S. government.
Credit markets: Stayed resilient
Corporate bond spreads widened in April amid broad market volatility resulting from the early-April tariff announcements but ended the quarter with marginally tighter yield spreads and positive total returns. Corporate bonds were supported by their relatively high yields, robust fundamentals and lower levels of new issuance over the period. The Bloomberg U.S. Aggregate Bond Index rose 1.21% over the quarter, bringing its year-to-date gain to 4.02%.
The U.S. dollar: Trending lower
The Nominal Trade-Weighted U.S. Dollar Index fell 5.41% in the second quarter, bringing its year-to-date decline to -7.27%—its weakest start to a year since 1973. The decline was predominantly driven by uncertainty over trade policy, the U.S. economic outlook as well as concerns about domestic fiscal policy. Strength in the euro and Japanese yen also contributed to the U.S. dollar’s relative weakness, with the euro supported by a more stimulative fiscal policy and the yen continuing to strengthen on expectations of rising interest rates in Japan.
Commodities: Weakness, led by oil
The S&P GSCI Index (a broad-based and production-weighted index representing the global commodity market) fell 4.39% in the second quarter, led by a decline in the price of oil. Industrial and precious metals rose over the period, largely as a result of tariff uncertainty. Oil prices briefly surged late in the quarter on escalating conflict in the Middle East, but the announcement of increased supply from OPEC+ (a consortium of oil-producing nations) weighed on prices. The cost of a barrel of West Texas Intermediate (a grade of crude oil used as a benchmark in oil pricing) fell to $65.11, a drop of 8.91% from the end of the first quarter.
Before making a change in your investment portfolio, you may wish to consult with a financial professional to determine how that may align with your long-term goals and objectives.
All information and representations herein are as of 07/15/2025, unless otherwise noted.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
The forward PE ratio uses the forecasted earnings per share of the company over the next 12 months for calculating the price-earnings ratio. It is calculated by dividing the price per share by forecasted earnings per share over the next 12 months.
Earnings yield is the 12-month earnings divided by the share price. Earnings yield is the inverse of the P/E ratio. Earnings yield is one indication of value; a low ratio may indicate an overvalued stock, or a high value may indicate an undervalued stock.
The S&P 500® Index is a market-cap weighted index that represents the average performance of a group of 500 large-capitalization stocks.
The CBOE Volatility Index, or VIX, is a real-time market index representing the market’s expectations for volatility over the coming 30 days. Investors use the VIX to measure the level of risk, fear or stress in the market when making investment decisions.
The Russell 2000® Index is an unmanaged index considered representative of small-cap stocks.
The Nasdaq Composite Index is a stock market index that includes almost all stocks listed on the Nasdaq stock exchange. The Nasdaq – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.
The MSCI ACWI ex-USA Index is an unmanaged index considered representative of large- and mid-cap stocks across developed and emerging markets, excluding the U.S.
The Bloomberg U.S. Aggregate Bond Index is an unmanaged index considered representative of the U.S. investment-grade, fixed-rate bond market.
The Federal Funds effective rate is the interest rate at which depository institutions (mainly banks) lend reserve balances to other depository institutions overnight on an uncollateralized basis. In simpler terms, it's the rate banks charge each other for short-term loans to meet their reserve requirements.
The Consumer Confidence Index (CCI) is a survey administered by the Conference Board. The CCI measures what consumers are feeling about their expected financial situation, whether that's optimistic or pessimistic.
The Consumer Price Index measures the monthly change in prices paid by U.S. consumers for a basket of goods and services.
The Core Consumer Price Index (CPI) measures changes in the prices of goods and services, with the exclusion of food and energy.
The Personal Consumption Expenditures (PCE) Price Index, also known as consumer spending, is a measure of the spending on goods and services by people of the U.S.
The Core Personal Consumption Expenditures (PCE) Price Index, also known as consumer spending, is a measure of the spending on goods and services, excluding food and energy prices, by people of the U.S.
The Nominal Trade-weighted U.S. Dollar Index measures the value of the U.S. dollar based on its competitiveness versus trading partners.
The Institute for Supply Management (ISM) survey is a monthly indicator of U.S. economic activity based on a survey of purchasing managers at manufacturing firms nationwide.
Any indexes shown are unmanaged and do not reflect the typical costs of investing. Investors cannot invest directly in an index.
Past performance is not necessarily indicative of future results.
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