Q2 2025: Markets digest tariffs and geopolitical tension
The second quarter of 2025 was marked by a volatile and complex stock market environment, influenced by various factors such as economic indicators, corporate earnings, and geopolitical events.
Tariffs shake the market
On “Liberation Day”, the Trump administration announced an aggressive tariff policy: a 10% levy on all imports, with higher rates for countries with large U.S. trade deficits.1 The unexpected move triggered a sharp selloff in global equity markets.
During the week after Liberation Day, the S&P 500 Index fell nearly 5% in a single day, a drop not seen since the COVID-19 panic in March 2020.2 At their lowest points in 2025, the S&P 500 Index, NASDAQ Composite Index, and S&P/TSX Composite Index were down nearly 19%, 24%, and 13%, respectively.3
Markets recovered after the administration introduced a 90-day negotiation window for affected countries. By June 30, 2025, the S&P 500 Index, NASDAQ Composite Index, and S&P/TSX Composite Index had rebounded by 5.5%, 5.5%, and 8.6%, respectively.4
Outlook: Uncertainty and caution
Looking ahead, uncertainty is likely to remain high as investors weigh the implications of tariff policy and conflict in the Middle East. Given the recent rally, there is potential for further downside. Investors may wish to remain cautious and avoid overreacting negatively to short-term declines.
Still, there are reasons for cautious optimism. Both the Bank of Canada and the U.S. Federal Reserve Board are expected to cut interest rates in the second half of the year, which could help support growth.5 In our opinion, a recession seems unlikely at present as economies have remained resilient despite the negative headlines.
Balancing risks and opportunities
We also believe there is a limit to how much market and economic impact the Trump administration will accept from its current direction on trade. U.S. yields are trending lower, oil prices may ease if geopolitical tensions cool, and the U.S. dollar has weakened – all historically positive for growth.6, 7
In times like these, leaning into the wind carefully and selectively can be beneficial. Hang in there.
Sources:
2https://www.investing.com/indices/us-spx-500-historical-data. As at April 3, 2025.
3www.investing.com. As at April 8, 2025.
4www.investing.com. As at June 30, 2025.
5Cool Core Inflation Boosts Bets on Rate Cuts.
610-Year Treasury Yield Posts Largest Decline Since April.
7Dollar Heads for Worst First Half in Decades.
The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. It is not possible to invest directly in an index. Past performance does not guarantee future results. The S&P/TSX Composite Index is the benchmark Canadian index that tracks the performance of companies listed on the Toronto Stock Exchange (TSX). The NASDAQ Composite Index is a market-value-weighted index that tracks the performance of all stocks listed on the NASDAQ Stock Market.