Q2 2025 Market Commentary
The following market commentary provides context for the investment performance of your charitable assets.
From Cambridge Associates, investment advisor
Global stock markets delivered strong results this quarter, with the MSCI All Country World Index rising 11.5% to reach new record highs. Markets initially reacted negatively to new US tariffs announced by President Trump in early April, but quickly recovered and climbed more than 20% from their lowest point during the quarter. The main driver of this rebound was progress in trade negotiations, particularly between the US and China. The uncertainty around trade policy led to a decline in the value of the US dollar, which made international stocks more attractive for US-based investors. Despite this, US stocks still outperformed most other markets in local currency terms, largely due to the strength of major technology companies. Globally, most government bond yields fell, but longer-term US Treasury yields increased as investors became more concerned about inflation and rising US government debt.
US equities, as measured by the MSCI US Index, rose 11.2%, slightly trailing developed markets outside the US, which gained 12.0%. The US market’s gains were concentrated in a small group of large technology companies, often referred to as the “Magnificent 7,” which rose 21%. Sectors such as information technology and communication services performed particularly well, with companies like Nvidia posting significant gains. Renewed optimism about artificial intelligence was a key factor supporting these results, helping to offset concerns about US trade policy. As a result, larger companies outperformed smaller ones, and growth-oriented stocks outpaced value-oriented stocks.
Developed markets outside the US benefited from the weaker US dollar. The Pacific region (excluding Japan) and Canada both gained 14.2%. The Pacific region was supported by easing tensions between the US and China, which are important trading partners. In Canada, consumer confidence improved and the government withdrew a digital services tax on US technology firms, which helped restart trade discussions. Europe (excluding the UK) also performed well, with most of the gains driven by currency movements. Despite ongoing trade tensions with the US, Europe’s outlook improved due to lower interest rates and expectations for increased government spending. Japan (11.4%) and the UK (8.7%) lagged, with Japan facing concerns about export demand and the UK experiencing signs of slower economic growth and reduced expectations for interest rate cuts.
Emerging markets delivered returns similar to other international markets, with the MSCI Emerging Markets Index up 12.0%. China underperformed, however, rising only 2.0% as economic data remained weak despite new government stimulus and reduced trade tensions. Other Asian markets, such as Korea (up 32.7%) and Taiwan (up 26.1%), performed strongly due to their significant technology sectors. Latin America was the best-performing emerging market region, gaining 15.2%, supported by attractive valuations and less exposure to global trade and political tensions. Mexico (20.5%) and Brazil (13.3%) led the region. Europe, the Middle East, and Africa lagged, as gains in European markets were offset by a decline in Saudi Arabia.
US fixed income assets posted modest gains, with the Bloomberg US Aggregate Bond Index up 1.2%, amid ongoing market volatility. US Treasury securities (up 0.8%) underperformed investment-grade (1.8%) and high-yield (3.5%) corporate bonds, as investors were more willing to take on risk. The yield on 10-year US Treasury bonds ended the quarter at 4.24%, little changed overall, but had risen as high as 4.58% in May following a US credit rating downgrade and the passage of a tax and spending bill expected to increase the federal deficit. Yields declined later in the quarter as signs of slower economic growth emerged and expectations for Federal Reserve rate cuts increased. However, yields on 30-year bonds rose nearly 0.2% as investors sought additional compensation for the risk of higher inflation and government debt. The Federal Reserve kept interest rates unchanged during the quarter.
The US dollar depreciated by 7% against a basket of other major currencies, bringing its year-to-date decline to nearly 11%. The dollar’s weakness was primarily due to uncertainty around US policy, which led some global investors to reconsider their US investments. These factors outweighed the support from higher US interest rates, as the Federal Reserve kept rates steady.
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