Key takeaways
Investors wonder if the S&P 500’s rollercoaster performance so far this year signals more choppy waters ahead.
While the underlying economic fundamentals remain solid, investors face ongoing market volatility.
In the second quarter, stock market leadership shifted back to technology-oriented stocks.
Two distinct quarters of U.S. equity market performance characterized 2025’s first half . In the first quarter the S&P 500 lost ground, drifting toward a bear market (a decline of 20% or more in value) but in mid-April bounced back. By the end of June, both the S&P 500 and NASDAQ Composite indices reached record highs before a modest retreat in July’s second week. 1
President Trump's focus on new tariffs drove market sentiment. Investors generally reacted negatively to April 2nd tariff announcements, fearing near-term negative economic ramifications. As the Trump administration recalibrated to lessen the severity of tariffs, the S&P 500 rebounded. Markets also reacted favorably to the early July passage of comprehensive tax and spending legislation, solidifying an extension of 2017’s tax cuts, adding other tax breaks and raising the debt ceiling.
However, in early July, the administration initiated further tariffs, effective August 1. The administration applied 25% tariffs to Japan and South Korea, and tariffs of 25% to 40% on several other smaller trading partners. These new tariffs far exceed 10% tariffs that were generally in effect. “Valuations, as reflected in the market’s recent recovery, were priced for perfection,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group. “Twenty-five percent tariffs are not perfection.” He notes that markets were trading toward a base case of tariffs in the 10-15% range.
Haworth observes that despite the S&P 500’s recent rally, markets remain sensitive to tariffs. “Investors know that once tariffs are applied, the costs will come in the form of profit margin compression for corporations or higher consumer inflation, or a mix of both.” Neither outcome is a positive market development, says Haworth.
Terry Sandven, chief equity strategist with U.S. Bank Asset Management Group says investors face a range of issues with the potential to influence today’s market dynamics. “The Israel-Iran conflict is the latest geopolitical issue, but there are others such as tax reform, deficit spending and immigration policy.” These external events are outside of the basic economic and corporate earnings fundamentals that generally drive stock performance. The rapid pace of news likely contributed to increased market volatility throughout 2025.
“The market is balancing between a rising wall of worry related to many external events that keep investors on edge, and generally favorable fundamentals,” says Sandven.
Overall performance year-to-date, across different equity market segments, is muted compared to the previous two years. Like 2023 and 2024, large-cap stocks have outpaced small- and mid-cap stocks in 2025. 2 “Small cap firms are more dependent on borrowing and face more cost pressures from persistently high interest rates,” says Tom Hainlin, national investment strategist with U.S. Bank Asset Management Group. “If we begin to see greater anticipation of rate cuts, small-cap stock prices might rise.”
What’s changed from other years is broader market leadership. Information technology, communication services (mostly technology-related), and consumer discretionary stocks dominated S&P 500 performance in 2023 and 2024. In 2025, other sectors such as industrials, utilities and financials rank among the top five. Notably, technology-related stocks began the year with significant losses, but recovered in the second quarter. 1
Technology-related stocks appeared to benefit from the recent pause in tariff plans. “Investors returned to a focus on growing investment in artificial intelligence (AI), which drove markets before this year,” says Haworth. “Investors regained some confidence in the technology sector.”
“Key indicators like inflation, the unemployment rate and manufacturing activity, remain healthy,” says Sandven. “That’s contributed to favorable equity prices.” However, Sandven notes that in midsummer, markets may be in a more “wait-and-see” mode. He notes that the economic fallout from higher tariffs is not yet visible. “We expect to get more clarification as companies report second quarter earnings, beginning in July,” says Sandven. “For example, retailers will talk about inventory levels, consumer demand and the impact tariffs have on upcoming back-to-school and holiday shopping seasons.”
“The market is balancing between a rising wall of worry related to many external events that keep investors on edge, and overall favorable fundamentals.”
Terry Sandven, chief equity strategist with U.S. Bank Asset Management Group
Some economic projections indicate the likelihood of slower economic growth. The Federal Open Market Committee recently released projections indicating that U.S. Gross Domestic Product (GDP) growth for 2025 is expected to be just 1.4%, compared to 2024’s 2.8% growth rate. 3
“To this point, there aren’t signs that a recession is on the horizon,” says Haworth. “We’re closely monitoring high-frequency data (reports issued as frequently as weekly), and it appears the economy is muddling through despite the uncertainty created by tariff policies.”
“There’s a lot that we see fundamentally that’s directionally consistent with rising equity prices,” says Sandven. This includes a modest inflation environment, relatively stable interest rates and favorable corporate earnings growth.
Sandven says technology companies closely associated with AI innovation are performing well. The same is true of utilities stocks. “Data centers require a lot of electrification. That positions utilities for accelerating growth in the next few years as the build-out of data centers unfolds.”
Tariff policy will remain a key issue that could influence the market’s direction.
Eric Freedman, chief investment officer for U.S. Bank Asset Management Group, encourages investors to adopt a long-range view, and avoid the temptation of trying to time the market. “Stay invested, but make sure you are in the right asset allocation.” Freedman says volatile markets, like those in 2025, help focus investors on realistic conversations about their risk tolerance level. “If you determine you need to adjust your portfolio positioning, utilize a prudent transition plan.” In addition, says Freedman, “If you have extra cash, consider incrementally and methodically staging in some of that cash.”
Haworth says for those who held cash as a precaution and missed the recent market rally, “It still makes sense to get started, utilizing dollar-cost averaging to invest over time.” While markets at new all-time highs sometimes present risks, Haworth notes that “new all-time highs are often followed by new all-time highs.”
This is an important time to check in with a wealth planning professional to make sure you’re comfortable with your current investments and that your portfolio is structured in a manner consistent with your time horizon, risk appetite and long-term financial goals.
The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. Diversification and asset allocation do not guarantee returns or protect against losses. The Russell MidCap Index provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500, is designed to measure the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The Russell 2000 Index refers to a stock market index that measures the performance of the 2,000 smaller companies included in the Russell 3000 Index.
Stocks are shares of publicly traded companies can be bought and sold. These transactions occur on exchanges and over-the-counter (OTC) marketplaces. The activity of pricing, buying and selling stocks is all activity that occurs in what is generally called “the stock market.”
Stocks frequently move up and down. Between November 2023 and November 2024, the S&P 500 trended higher (following a generally downward trend between August and October 2023). The S&P 500 experienced more volatility beginning in late 2024, with modest setbacks in October and December 2024, then reached an all-time high before a short by significant retreat. By mid-2025, stocks made up most of the ground lost earlier in the year. 1 Solid U.S. economic growth, which helped boost corporate earnings, is still a key to ongoing market performance. New Trump administration policies, particularly those with an economic impact, are another consideration. Investors appear to be particularly concerned about the economic ramifications of significantly higher tariffs applied to foreign imported goods. Federal Reserve (Fed) interest rate policy can also impact markets. For much of 2023 and 2024, the Fed held the target federal funds rate at a top level of 5.50%. In September, November, and December 2024, the Fed cut interest rates a total of 1.0%, its first rates cut in more than four years. However, the Fed scaled back expectations for 2025, projecting just two additional rate cuts this year.
<p>These three indices are frequently quoted on daily news reports reflecting daily performance of the stock market. The Dow Jones Industrial Average, perhaps the most quoted index, reflects the performance of 30 prominent stocks listed on U.S. exchanges. The Standard & Poor’s 500 tracks a broader universe of 500 large U.S. stocks. The NASDAQ Composite Index provides a measure of performance of 2,500 stocks listed on the National Association of Securities Dealers (NASD) Automated Quotations exchange. These represent small-, mid- and large-cap stocks. Investors often track these indices, particularly over time, to measure broader stock market performance.
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