Reading The Financial Markets: Q2, 2025

Relatively few investors are day traders, yet most of the technical market indicators are computed daily. This leads to a very myopic perspective — it’s like driving a car with a microscope. You’ll eventually see the oncoming traffic, but it may be after you crash.

Today, we’ll look at the Second Quarter Market and what a remarkable 90 days it was. The most significant event of the Quarter was, undoubtedly, Liberation Day, April 2, the day that President Donald Trump presented the world with his outline of worldwide tariffs.

Many pundits point to this event as the beginning of investors’ woes and the financial market decline. However, most stocks were already in a downtrend, with such groups as Healthcare, Basic Materials, Real Estate, Energy, and Technology already moving lower. Only Utilities and Consumer Defensive Stocks (mainly retail stores and products) could eke out gains this year.

So, while important, the performance in equities suggests that the tariffs accelerated an existing trend.

Here’s a look at specific financial sectors:

The Dollar

The US Dollar is the global Reserve Currency and, as such, is vitally essential in international trade and finance. However, this Quarter’s crosscurrents have presented the Dollar with significant headwinds. The US's willingness to use the Dollar as a geopolitical instrument through tariffs, international banking (read SWIFT), and boycotts has led to a decline in the Dollar’s relative strength against other currencies.

In Q2 2025, the US Dollar Index fell by 9%.

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Energy

Oil is the most readily available proxy for a nation’s energy use and a good representation of future economic activity. Rising oil prices, which often accompany rising demand for energy, generally indicate positive economic growth, while declining oil prices may predict a decline.

West Texas Intermediate (the country’s most closely watched oil price) declined by 2.4% in Q2 2025.

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Monetary Metals

Historically, Gold and Silver have been principal methods for investors to hedge against a decline in their country’s currency. In this latest Quarter, Gold was virtually alone as the only financial asset (except for a select number of equities) to show a positive return. Silver, on the other hand, was flat.

In Q2, Gold rose by 13%.

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Cryptos

Another currency alternative is the emerging cryptocurrency asset class. Bitcoin, the most widely followed Cryptocurrency, remained essentially unchanged during this past Quarter.

Q2 Bitcoin was flat.

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Copper

On Wall Street, Copper has been given the special moniker of “Dr. Copper” due to its seeming ability to predict future economic activity, especially for Real Estate, where Copper is a principal component. Copper has also been useful in predicting the onset of inflation.

Q2 Copper gained 11%

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Bonds

US Treasuries have gained special significance during this time of high Federal Government deficits. Bonds, after all, are a chief source of funding for the central government. Bonds are also sensitive to any change in interest rates. While the Federal Reserve directly impacts short-term interest rates, the market sets longer-duration yields. This Quarter saw little price movement in bonds, with the 30-year bond trading flat, while the shorter 2-year and 10-year bonds rose a little (rising bond prices indicate lower interest rates).

Q2 Bonds: 30-year flat, 2-year and 10-year rose 2%.

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Equity Indexes

Q2 saw declines in all major equity indexes but with some surprises. The Dow Jones Industrial Average declined 8% in the Quarter, while the Standard & Poor’s Index fell 6%. However, here’s a surprise: the NASDAQ 100 also decreased by 6%, far less than some anticipated. As a group, the most widely affected was the broad-based Russell 2000, which was down 10%.

Q2 Equity Indexes all declined, but not yet in Bear Market Territory.

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Stock Market Leadership

We see the most worrying price action in the leadership stocks. For many months, the “Mag 7” stocks have captivated investors’ attention with their ability to seemingly weather any financial storm. However, recently, the Mag 7’s resilience has come into question. Using the commonly utilized rule of thumb, if a 20% reduction in price indicates a “bear-market” correction, then five of the Mag 7 are experiencing bear-level declines.

Going back two quarters to Q4 2024, only Microsoft and Apple are at lower prices, although not at bear-market levels. The other five stocks, Nvidia, Amazon, Google/Alphabet (two classes), and Meta/Facebook, have all declined by 20% or more. Technically, this decline in the price action of the market’s leaders is a concern for all of us.

Conclusion

I recently watched an interview with David Solomon, President of Goldman Sachs. It was amusing to see how many times Mr. Solomon could incorporate the word “uncertainty” into his answers. Although one would hope he could come up with a synonym, he correctly assessed this as one of the most “uncertain” periods for financial markets and investors.

While we saw some particularly volatile moments associated with the President’s Tariff announcements, particularly in US Bonds, overall, financial markets have regained their composure and seem headed on a steady course. Unfortunately, at the moment, that course portends a slight decline in economic activity and, hence, financial market performance.

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