Stocks staged a remarkable rebound this quarter, recovering swiftly after flirting with a bear market in April. The S&P 500 jumped 22% off its early April lows. Investor sentiment improved as trade tensions and tariff risks began to ease, removing a key source of anxiety. While tariff policy remains unresolved, the fundamentals told a more encouraging story—corporate earnings remained solid, the job market exceeded expectations, and inflation stayed in check. The Federal Reserve opted not to cut rates this quarter, adopting a wait-and-see approach to assess whether tariffs might reignite inflationary pressures.
Market leadership was clear. Technology stocks surged 39%, powered by renewed enthusiasm for Artificial Intelligence, which delivered an exceptional 48% gain. These results highlight how central innovation remains to investor optimism. Strength extended beyond tech, with Industrials and Consumer Discretionary sectors also contributing double-digit returns to the rally. Notably, the largest buyers this quarter were individual investors and corporations executing share buybacks, eager to capitalize on discounted share prices after the spring correction.
Investment Strategy
We remain fully invested and made one tactical change this quarter within our U.S. large cap allocation. In April, we added a position in the Invesco S&P 500 Low Volatility ETF (SPLV). As the name suggests, this ETF focuses on companies with historically lower price volatility—often more stable, “boring” businesses that tend to hold up better in choppy markets. This is a tactical allocation designed to help reduce portfolio risk during periods of elevated uncertainty. While not a long-term core holding, we plan to keep this position in place for the time being. To make room, we trimmed a bit from both our growth and value stock holdings in the large cap space.
We’re also pleased with the contribution from international equities. After years of U.S. market outperformance, many investors have overlooked global stocks. We’ve maintained our international allocation, and it has added meaningful value in the first half of the year. This reinforces our long-held view that global diversification pays off over time.
Outlook
Things certainly feel much better than they did three months ago. In general, we remain optimistic about both stock and bond performance over the next 12 months. Before diving into the reasons for our positive stance, it’s important to acknowledge the challenges that still lie ahead.
The U.S. economy enters the second half of the year navigating rising debt levels and signs of slowing growth. Tariff policy and ongoing trade tensions remain unresolved, and the Trump administration’s unconventional approach to policy-making continues to inject volatility into the markets. Inflation readings are also under the microscope as investors wait to see if tariffs will ultimately push prices higher. This quarter may prove to be a key turning point, particularly in gauging how tariffs affect consumer spending and confidence.
Our optimism around stocks is rooted in earnings—our north star for long-term market performance. S&P 500 earnings are expected to grow between 9% and 10% this year, which is impressive given trade tensions and geopolitical headwinds. At the start of the year, growth expectations were closer to 14%, so the bar has come down, but not alarmingly so. Looking further out, early estimates for 2026 suggest earnings growth in the low teens—well above historical averages. At current levels, stocks appear fairly valued. They’re not on sale, but they aren’t wildly overpriced either—especially if the expected earnings gains materialize.
We are also encouraged by the bond market. After a long stretch of ultra-low yields, today’s interest rate environment offers both income and defensive characteristics. Yields haven’t been this high in nearly 15 years, and starting yields remain the best predictor of future bond returns. Encouragingly, bond markets have been relatively calm, showing little concern over rising deficits or the tax cut proposals moving through Congress. Rates have actually drifted lower this quarter.
Through all of this, our investment philosophy remains unchanged: stay long-term focused. The short-term noise—daily headlines, sudden market swings, and unexpected policy shifts—can be confusing and emotionally taxing. But when you zoom out, the bigger picture becomes clear. The chart below highlights the S&P 500’s journey since the Great Financial Crisis, a path marked by countless market-moving events. And yet, here we are—at all-time highs. It’s a powerful reminder that with patience and perspective, we can navigate volatility and stay on track toward long-term goals.
