Introduction
Despite significant volatility at the start of the period, including sharp falls in global equity markets at the beginning of April, most indices still managed to post decent returns in the second quarter. Investor sentiment was dominated by uncertainty over US trade tariffs, starting with “Liberation Day” on 2 April when President Trump announced worse than expected tariffs that led to sharp declines in equity markets. However, the subsequent announcement of a temporary pause until 9 July in most tariffs to allow for negotiations contributed to the significant rebound in equity markets.
From an economic point of view, the Bank of England reduced its interest rate by 0.25% to 4.25%, whilst inflation of 3.4% in May meant it remained above its 2% target. UK economic growth in the first quarter was stronger than expected at 0.7% quarter-on-quarter, driven by the dominant service sector. In the US, the Federal Reserve left its interest rate unchanged at 4.25-4.50%, noting the increased uncertainty about the economic outlook as tariff policy continues to evolve. The US economy contracted in the first quarter for the first time in three years, but this was driven by a surge in imports as businesses and consumers rushed to stockpile goods in anticipation of higher costs ahead of the announcement on US tariffs. The European Central Bank cut its interest rate twice, each time by 0.25%, to 2%, but suggested that it was nearing the end of its rate-cutting cycle with inflation now just below the 2% target.
Market Performance
CR = Capital return; LC = Local currency
Source: Lipper for Investment Management
Past performance is not a reliable indicator of future performance
UK Equities
UK equities rose in the second quarter, though the mid cap FTSE 250 outperformed the FTSE 100 as it recorded a very strong gain. The returns from the FTSE 100 was held back by the underperformance of the large energy and healthcare sectors. However, the FTSE 250 has a much lower exposure to these two sectors, whilst the more domestically focused index saw its performance also supported by positive economic data.
Global Equities
Despite suffering significant volatility and its worst daily decline since 2020 at the beginning of April, the US S&P 500 (which measures 500 of the largest US companies) rebounded strongly to post a good gain in the second quarter. Investor sentiment was dominated by US tariffs, with the announcement of the pause until July driving the recovery, along with a strong earnings season. In particular, there was notable better performance from the mega-cap tech stocks. However, the weakness in the US dollar meant in sterling terms the returns from the US were lower. In a reversal of first quarter, the FTSE World Europe ex UK Index (which measures large and mid cap stocks across Europe) underperformed the US though it did finish the quarter with a gain despite similarly suffering losses at the start of the period. The gains in Europe were led by industrials, particularly defence stocks, and real estate. The Japanese Nikkei 225 Index (a measure of Japan’s top 225 companies) was a very strong performer, driven by growth stocks and the easing in trade tensions, particularly between the US and China.
Asia and Global Emerging Markets Equities
Asian and Global Emerging Markets also suffered at the beginning of the quarter following the announcement of the worse than expected tariff package, but then similarly rebounded strongly after the subsequent 90-day pause. There was a further boost from the weaker US dollar. The broad MSCI Asia ex Japan Index (which captures the performance of over 1,000 companies across Asia) posted a decent gain as tariff concerns eased, with progress on talks between the US and China supporting sentiment. Across regional markets, South Korea, Taiwan and Hong Kong were among the strongest performers. Global Emerging Markets, as demonstrated by the broad MSCI Emerging Markets Index (which covers over 1,200 stocks from across 24 emerging markets countries) also produced a strong gain, with emerging Asia a notable contributor.
Fixed Income
UK gilts recorded a small gain in the second quarter, as shown by the performance of the FTSE Actuaries UK Conventional Gilts Index, although there was much less volatility than in equity markets. However, concerns over fiscal policy contributed to stronger returns from short duration bonds, whilst longer-dated bonds underperformed. In the US, debt sustainability was a key driver, particularly with the House of Representative’s approval in June of the Reconciliation Bill (known as the “Big Beautiful Bill”), which is expected to increase the burden of financing US government debt.
AFP162 Exp:07/2026
Home > Market Commentary – Quarter 2, 2025
Market Commentary – Quarter 2, 2025
Introduction
Despite significant volatility at the start of the period, including sharp falls in global equity markets at the beginning of April, most indices still managed to post decent returns in the second quarter. Investor sentiment was dominated by uncertainty over US trade tariffs, starting with “Liberation Day” on 2 April when President Trump announced worse than expected tariffs that led to sharp declines in equity markets. However, the subsequent announcement of a temporary pause until 9 July in most tariffs to allow for negotiations contributed to the significant rebound in equity markets.
From an economic point of view, the Bank of England reduced its interest rate by 0.25% to 4.25%, whilst inflation of 3.4% in May meant it remained above its 2% target. UK economic growth in the first quarter was stronger than expected at 0.7% quarter-on-quarter, driven by the dominant service sector. In the US, the Federal Reserve left its interest rate unchanged at 4.25-4.50%, noting the increased uncertainty about the economic outlook as tariff policy continues to evolve. The US economy contracted in the first quarter for the first time in three years, but this was driven by a surge in imports as businesses and consumers rushed to stockpile goods in anticipation of higher costs ahead of the announcement on US tariffs. The European Central Bank cut its interest rate twice, each time by 0.25%, to 2%, but suggested that it was nearing the end of its rate-cutting cycle with inflation now just below the 2% target.
Market Performance
CR = Capital return; LC = Local currency
Source: Lipper for Investment Management
Past performance is not a reliable indicator of future performance
UK Equities
UK equities rose in the second quarter, though the mid cap FTSE 250 outperformed the FTSE 100 as it recorded a very strong gain. The returns from the FTSE 100 was held back by the underperformance of the large energy and healthcare sectors. However, the FTSE 250 has a much lower exposure to these two sectors, whilst the more domestically focused index saw its performance also supported by positive economic data.
Global Equities
Despite suffering significant volatility and its worst daily decline since 2020 at the beginning of April, the US S&P 500 (which measures 500 of the largest US companies) rebounded strongly to post a good gain in the second quarter. Investor sentiment was dominated by US tariffs, with the announcement of the pause until July driving the recovery, along with a strong earnings season. In particular, there was notable better performance from the mega-cap tech stocks. However, the weakness in the US dollar meant in sterling terms the returns from the US were lower. In a reversal of first quarter, the FTSE World Europe ex UK Index (which measures large and mid cap stocks across Europe) underperformed the US though it did finish the quarter with a gain despite similarly suffering losses at the start of the period. The gains in Europe were led by industrials, particularly defence stocks, and real estate. The Japanese Nikkei 225 Index (a measure of Japan’s top 225 companies) was a very strong performer, driven by growth stocks and the easing in trade tensions, particularly between the US and China.
Asia and Global Emerging Markets Equities
Asian and Global Emerging Markets also suffered at the beginning of the quarter following the announcement of the worse than expected tariff package, but then similarly rebounded strongly after the subsequent 90-day pause. There was a further boost from the weaker US dollar. The broad MSCI Asia ex Japan Index (which captures the performance of over 1,000 companies across Asia) posted a decent gain as tariff concerns eased, with progress on talks between the US and China supporting sentiment. Across regional markets, South Korea, Taiwan and Hong Kong were among the strongest performers. Global Emerging Markets, as demonstrated by the broad MSCI Emerging Markets Index (which covers over 1,200 stocks from across 24 emerging markets countries) also produced a strong gain, with emerging Asia a notable contributor.
Fixed Income
UK gilts recorded a small gain in the second quarter, as shown by the performance of the FTSE Actuaries UK Conventional Gilts Index, although there was much less volatility than in equity markets. However, concerns over fiscal policy contributed to stronger returns from short duration bonds, whilst longer-dated bonds underperformed. In the US, debt sustainability was a key driver, particularly with the House of Representative’s approval in June of the Reconciliation Bill (known as the “Big Beautiful Bill”), which is expected to increase the burden of financing US government debt.
AFP162 Exp:07/2026
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