Q2 2025 Review: From Shock to Recovery

Market Commentary Quarter 2 2025

During the second quarter of 2025, markets faced a sharp downturn following the shock triggered by “Trump’s Liberation Day” in early April, which briefly unsettled global investor sentiment. However, it gradually recovered in the following weeks, supported by improving economic conditions and renewed market confidence. Overall, global markets remained sensitive to macroeconomic signals, with investor sentiment being impacted by a combination of easing inflation trends, diverging central bank policies, and ongoing geopolitical uncertainties.

In Q2 2025, global economic conditions remained mixed, with Europe reducing interest rates gradually. The European Central Bank cut interest rates by 25 basis points in April and then again in June, following earlier reductions in Q1, as inflation continued to ease and growth prospects weakened. Eurozone inflation fell to around 2% in June, down from 2.3% in March, reinforcing expectations of a continued easing cycle. German bonds and other core European sovereign bonds gained on falling yields, while other non-core European government bond spreads tightened modestly as investor risk appetite improved. Fiscal spending initiatives in major economies, including the rollout of Germany’s €500 billion infrastructure fund, provided a supportive backdrop. In contrast, the US Federal Reserve (FED) maintained its policy rate at 4.25–4.50% as inflation stabilized and growth remained uneven. Treasury yields remained in similar territory, with market focus shifting to the FED’s cautious stance and upcoming tariff precautions. In Asia, Japanese yields drifted higher on persistent inflation, while China introduced further monetary easing to counter weak domestic demand and deflationary pressures.

Global equities experienced a high level of volatility in Q2 2025, dipping sharply in April following the announcement of the new US tariff measures before rebounding to finish the quarter in positive territory. The S&P 500 and Nasdaq 100 led the recovery, European markets outperformed mostly due to the stimulus expectation and rotation away from US mega-cap technology stocks. The UK and emerging markets posted steady gains, while Japan and parts of Asia lagged early on due to trade uncertainty, though sentiment improved towards the end of June as global volatility eased.

While Q2 volatility underscored the impact of unexpected shocks, the subsequent recovery highlights the resilience of markets when supported by stimulus measures, easing inflation, and cautious central bank policies. Investors are expected to continue monitoring regional divergences, sector rotations, and policy signals closely as they navigate a mixed economic landscape in the coming months.

Article Sources: Schroders Insights 

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