Market Summary
U.S. and global equities rallied back in the second quarter after a sharp drop in early April. Investors grew numb to the numerous changes of the Trump administration’s tariff policies and saw them to be more bark than bite. In the second quarter of 2025, big tech companies continued to spend heavily on AI, building new data centers, developing custom chips, and expanding cloud services. Companies like Google and Meta are focusing much of their investment on AI infrastructure and hiring top talent. At the same time, businesses are also putting more money into protecting AI systems, especially around data privacy and security concerns.
| INDEX | ASSET CLASS | 2025 YTD |
|---|---|---|
| DJ U.S. TOTAL STOCK MARKET | U.S. STOCKS | 5.68% |
| MSCI AC WORLD EX-USA | INTERNATIONAL STOCKS | 18.07% |
| BLOOMBERG U.S. AGGREGATE BOND | BONDS | 4.02% |
International equities continued to outperform domestic stocks in Q2 with a double-digit lead for the first half of the year. They’ve done better than U.S. stocks in the first half of 2025 mainly because international markets offered cheaper valuations, rising fiscal stimulus, and rate cuts—especially in Europe and China—while U.S. markets grappled with ongoing trade policy uncertainty and persistently higher interest rates. Additionally, the U.S. dollar has weakened, boosting returns for foreign equities when converted into dollars, and investors rotated funds out of richly valued U.S. mega‑caps into more attractively priced global opportunities.
During Q1 2025, investor sentiment for domestic equities cooled sharply amid rising U.S. tariffs and trade uncertainty. As a result, the S&P 500’s forward P/E multiple contracted from around 22× to about 18×, reflecting a market that was no longer willing to pay high valuations for future expected earnings . In Q2, sentiment improved significantly as some trade tensions eased and investor risk appetite returned. This led to a rebound in the forward P/E multiple, which climbed back up to approximately 22× by the end of June, nearly restoring valuations to where the year began.
U.S. bonds are on pace for a third calendar year of positive total returns after two consecutive years of losses in 2021 and 2022. Bond prices surged thanks largely to attractive coupon yields and strong demand as investors sought safety amid equity market volatility. At the same time, U.S. bond markets experienced notable yield volatility—particularly in long-duration Treasuries—as markets responded to trade-policy shocks, fiscal uncertainty, and political speculation around Federal Reserve leadership. From the chart below, the current yield on June 30, 2025 implies a forward 5-year annualized return of 4.56%.
Breaking Down the One Big Beautiful Bill
Get ready for massive tax policy changes with the passing the One Big Beautiful Bill that was introduced by Republican lawmakers and signed by President Trump on July 4th. The bill would make some tax cuts from Trump’s first term permanent, introduce new tax cuts, reduce spending in safety net benefits, and increase the budget for areas like immigration and border enforcement. Calling it a big bill is not a hyperbole, as it is literally over 900 pages of text. We’ll narrow the focus to a few elements of the bill that affect your personal finances.
SALT deductions. State and local tax deductions (SALT) will now be capped as $40,000 as opposed to the $10,000 limit that was introduced in the 2017 changes. There will be income limits before it’s phased down to $10,000. This higher deduction amount is not permanent and applies to tax years from 2025 to 2029.
Tip and overtime tax. Employees who work in jobs that traditionally receive tips could deduct up to $25,000 in tip income from their federal income taxes, while workers who receive overtime could deduct up to $12,500 of that extra pay. For overtime income, only the amount above an employee’s regular pay rate is deductible. Income limits will apply to both types of income.
Seniors. Seniors aged 65 and older will receive additional deductions on top of their standard deduction in tax years 2025 through 2028. Individual tax-filers will receive $6,000 more while joint filers receive $12,000. The extra deduction phases out for MAGI over $75,000 ($150,00 for Married Filing Jointly).
Trump Accounts. A new investment account for children will be introduced that has similar tax benefits to an IRA. In addition, children born between January 1, 2025 and December 31, 2028 will receive a $1,000 tax credit when the account is opened. Additional contributions are also allowed with distributions beginning after the beneficiary turns 18.
Green energy credits. The Electric Vehicle Credit will come to an end after September 30, 2025. These EV credits were expanded by President Biden’s Inflation Reduction Act of 2022 to apply to a larger number of electric vehicles, including used ones. Similarly, federal credits for home solar will come to an end on December 31st of this year.
Looking Forward
As we look ahead to the third quarter of 2025, markets remain on edge amid growing uncertainty around U.S. tariff policy. The Trump administration has hinted at expanded tariffs on goods from China, Mexico, and even the European Union, reigniting fears of a broader trade war. These potential trade barriers could disrupt global supply chains and weigh on corporate margins, particularly in manufacturing and consumer goods sectors. While the U.S. economy has held up reasonably well so far this year—thanks in part to resilient consumer spending and strong labor markets—business confidence and investment may soften if geopolitical tensions escalate.
For investors, the second half of 2025 presents a mixed outlook. Equity markets could experience increased volatility as earnings growth slows and trade policy developments inject uncertainty. Valuations remain elevated in parts of the U.S. market, leading some investors to consider rotating into international equities or sectors less exposed to tariffs. On the fixed income side, bonds performed well in the first half, but long-term rates may drift higher if fiscal deficits continue to expand and inflation remains sticky. With political and policy risks in focus, diversification and discipline will be essential as we navigate the remainder of the year.
- Source: Bloomberg, FactSet, Moody’s, Refinitiv Datastream, Robert Shiller, Standard & Poor’s, J.P. Morgan Asset Management.
Forward P/E ratio is the most recent S&P 500 index price divided by consensus analyst estimates for earnings in the next 12 months, provided by IBES since March 1994 and FactSet since January 2022. Shiller’s P/E uses trailing 10-years of inflation-adjusted earnings as reported by companies. Dividend yield is calculated as consensus estimates of dividends in the next 12 months, provided by FactSet, divided by the most recent S&P 500 index price. EY minus Baa yield is the forward earnings yield (the inverse of the forward P/E ratio) minus the Bloomberg U.S. corporate Baa yield since December 2008 and interpolated using the Moody’s Baa seasoned corporate bond yield for values beforehand. *Average for dividend yield is since August 1995 due to data availability.
Guide to the Markets – U.S. Data are as of June 30, 2025. ↩︎ - Source: Bloomberg, FactSet, J.P. Morgan Asset Management.
Returns are 60-month annualized total returns, measured monthly, beginning 1/31/1976. R² represents the percent of total variation in total returns that can be explained by yields at the start of each period.
Guide to the Markets – U.S. Data are as of June 30, 2025. ↩︎
