Commonwealth Market Updates | Evergreen Wealth Solutions

Executive Summary

Equity markets built upon positive momentum throughout June, as the S&P 500 and Nasdaq Composite indexes ended the quarter at or near all-time highs.
Despite a significant tariff-induced correction to begin the quarter, conflict in the Middle East, and continued uncertainty around global trade, the S&P 500 staged a record-breaking rebound.
The US economy appears to be on relatively solid footing at the end of the second quarter, as economic growth returned to positive territory. The rebound from the negative GDP print in the first quarter reflected the impact of unusually high import volumes ahead of the tariff announcement, which quickly reversed even as the resolution of tariffs remains unclear.
However, uncertainty remains elevated as trade negotiations continue during the tariff pauses set to roll off in mid-July, Congress works to finalize the tax bill (with repercussions to the deficit), and geopolitical tensions persist.

Historic Rebound

In June, equity markets continued the rally that began in mid-April after the Liberation Day reciprocal tariffs were paused. The S&P 500 index rallied back from its peak-to-trough drop of nearly 20% to hit a new high in only 55 days, the fastest rebound after a drop of 15% in history.1

Many of the technology companies that lagged through the first quarter were among those that helped lead the rally back. Companies such as Netflix, Meta, Broadcom, Microsoft, and Nvidia are all up double digits year-to-date. However, not all Magnificent 7 names have participated; Apple, Google, and Tesla remain in negative territory so far this year (see year-to-date returns for the top iShares S&P 500 ETF holdings below).2

The second quarter rebound occurred in an environment that was anything but calm and quiet. Notable geopolitical and economic developments over the past three months included:

“Liberation Day” reciprocal tariff announcement – April 2
Reciprocal tariff pause – April 9
Moody’s downgraded US sovereign credit – May 16
Israel initiated airstrikes on Iran, triggering 12-day conflict – June 13
US conducted strikes on Iranian nuclear facilities using Massive Ordinance Penetrator bombs –June 21
Israel-Iran ceasefire briefly broken, then resumed – June 23

These headlines initially drove volatility across equity and fixed income markets (in the case of the tariff announcement), and in oil markets (Israel/Iran conflict). However, in each case volatility quickly subsided when the worst of the crisis appeared to have passed (see below). In fact, markets improved afterward (stock and bond prices went back up, oil prices fell) despite the lack of resolution to the tariff situation, the US deficit, and achieving lasting stability in the Middle East, respectively. The tariff pauses are set to roll off in mid-July, which could be a source of volatility or a positive catalyst if attractive trade deals are announced. As a result, all those issues remain potential headwinds for markets and the economy in the second half of the year.

Economic Update

Mirroring the resiliency shown by markets during the turbulent second quarter, the US economy has proven resilient, as well. US economic growth (as measured by Gross Domestic Product), which contracted during the first quarter due to large imports in the run-up to the tariff announcement, bounced back as the level of imports normalized. Additionally, unemployment remains relatively low at 4.1% and inflation (as measured by the Consumer Price Index) stands at 2.35%, just slightly above the Federal Reserve’s 2% target.

However, the economic news is not all positive. For example, both the ISM Manufacturing and Services Sector reports point to contraction in those sectors, with the survey responses from the Manufacturing sector report, in particular, expressing significant pessimism and uncertainty. Additionally, the University of Michigan Consumer Sentiment readings remain near their lowest levels ever recorded. The extreme negative sentiment has not yet translated into a significant drop off in economic activity, but we will be watching economic indicators closely in the second half of the year for signs of deterioration.

One Big Beautiful Bill Act and the Deficit

As we write this piece, the One Big Beautiful Bill Act appears to be headed for the President’s desk. While the bill hasn’t been signed yet, the Congressional Budget Office (CBO) estimates the bill will increase the federal deficit by $3.3 trillion over the next decade. If that occurs, the CBO estimates that the US federal debt as a share of the economy will grow to the highest level in our country’s history (see below).

Complicating matters, the US dollar has weakened year-to-date despite still-elevated long-term yields. While some of this reflects relative strength in the Euro and Yen, the dollar’s weakness amid higher rates could signal fading foreign investor confidence in US fiscal management.

Assuming the bill ultimately passes in something similar to its current form, the US dollar and long-term US Treasury yields will be important indicators of how foreign investors are digesting the increasing US deficit in the second half of the year.

The Path Forward

We end the first half of 2025 in relatively good shape given all that has occurred. Both the economy and markets have held up through tariff turbulence, conflicts in the Middle East and Ukraine, and significant US federal policy changes. Yet, the economy continues to grow, corporate earnings have been solid, unemployment remains relatively low, inflation is close to the Fed target, and many parts of the market are at all-time highs.

Potential headwinds still exist, however, and we expect continued periods of volatility as they develop over the remainder of the year. We appreciate your continued trust and welcome the opportunity to speak with you in greater detail in the context of your specific situation.

Best Regards,

Michael P. Kolb, CFP® & Martin A. Wildy, CFA