Key Observations
- Markets Advance in June - Despite geopolitical tensions and mixed policy signals, stocks powered higher with technology and industrials leading performance while small caps lagged. Abroad, robust local performance and a weakening U.S. dollar have buoyed returns in markets.
- When Uncertainty is High, Context is Grounding - Recent price moves may cause investors' concern, but additional context may provide perspective on the weaker U.S. dollar and rising oil prices in June.
- Big Bill, Big Deficit - According to the Congressional Budget Office, the "Big Beautiful Bill" will increase the deficit more than $2 trillion over the next ten years[1]. Expanding fiscal spending in a growing economy raises questions about long-term debt sustainability and funding sensitivity.
Market Recap
While it was certainly a turbulent quarter, markets rallied in June extending the year’s mostly positive performance despite geopolitical uncertainty and evolving policy signals. Volatility briefly surfaced in June following Middle East tensions, but sentiment stabilized quickly and showed evidence of investor resilience in the face of ongoing global uncertainty.
Investor muscle-memory kicked in, and, once again, technology stocks, and AI-centric constituents of the “Magnificent Seven,” ticked higher. The sector climbed an impressive +9.8%[2], making it the biggest gainer for the month. On the other hand, industrial stocks have quietly emerged as a top-performing sector this year, up +12.7%. That strength appears tied to investor optimism around pro-manufacturing policy goals from the current administration. Small caps struggled during the first half of the year with the biotech sector declining on anticipated scrutiny from U.S. policy and inflationary pressures.
The S&P 500 outpaced the MSCI EAFE by +2.9% and lagged the MSCI EM by -0.9% for the month. Year-to-date, international exposures remain ahead, supported by robust local market performance and a weaker U.S. dollar, which has enhanced returns.
Treasury yields declined across the curve in June. The 2-year yield ended the month at 3.7%, as markets priced in a higher likelihood of near-term Fed easing in response to softer growth data and a weaker-than-expected inflation print. Credit spreads also tightened, supported by steady demand and a favorable risk backdrop despite mixed economic signals.
When Uncertainty is High, Context is Grounding
In a market environment that often reacts faster than it reflects, uncertainty is an almost constant companion. Today, that uncertainty is elevated, and understandably so. Fiscal dynamics are rapidly shifting, inflation is caught between opposing forces, and policy is in flux. It is a time that calls for clarity, not certainty, and when clarity is hard to come by, context becomes our foundation.
Recently, focus has turned to U.S. dollar weakness and the potential for the U.S. losing its reserve currency status. Similarly, with rising tensions in the Middle East, oil has moved upward over the month adding to inflation concerns. At first glance investors may have concern, but with a bit of context that worry may abate.
If we were to rephrase “U.S. dollar weakens -11% year-to-date” to “U.S. dollar retraces back to 2022 levels, remains over 7% above the 20-year average” it may elicit different levels of concern. Or, if we mention that oil is below average historical levels when inflation was around 2.5%, that may also elicit different levels of concern. Context matters.
Big Bill, Big Deficit
Treasury markets have long absorbed large issuance volumes, though with a recent lack of clarity, buyers are asking for more compensation (i.e. higher rates). The context on why brings us to the so-called “Big Beautiful Bill”. As proposed, the U.S. will be expanding its deficit in a non-recessionary environment. Typically, the government tends to spend more in recessionary periods to offset lower consumer spending and cushion the blow. The opposite should hold true in periods where markets are growing. With interest expense over 3% of GDP and no recession in sight, this combination is historically rare[3]. With debt levels elevated and rolling into higher rates, the long-term sustainability of U.S. borrowing is beginning to re-enter investor conversations.
Additionally, investment funds now dominate at Treasury auctions rather than obligated buyers like central banks or dealers. This has the potential to make Treasury markets more sensitive to sentiment and flows which can impact the cost of funding a large deficit. For investors without explicit clarity on the future direction of rates, the long-end of the Treasury market may present as more volatile in this period of uncertainty.
Outlook
We entered 2025 believing that markets were at a crossroads. While a new administration presented optimism and opportunities, we believed that the market environment remained tricky with valuations at an all-time high, concentration amongst a handful of stocks in the S&P 500, and questions surrounding the path forward with the Fed. From this, our three pivotal themes were fragility, durability and the age of alpha, which we still believe are important as we enter the second half of the year.
- Fragility captures the vulnerabilities embedded in global markets derived from full valuations, concentration and inflationary pressures. It is a call for caution and strategic foresight to mitigate risks.
- Durability highlights the need to build resilience through thoughtfully diversified asset allocation designed to withstand today's risks and position portfolios for long-term success.
- The Age of Alpha emphasizes the importance of active management and alternative investments to drive positive outcomes in a market where traditional beta opportunities are scarce.
Together, we believe these themes continue to provide a framework for addressing uncertainty while identifying opportunities to enhance portfolio resilience and performance. Our process is not about predicting every market twist, but rather, aligning positioning with the underlying incentives that shape policy, capital flows, and investment behavior. When uncertainty is high, context is grounding. And context today tells us that even with policy rates likely to fall at some point, the path there may not be smooth, especially if the market starts asking harder questions.
Sources
[1] Congressional Budget Office. H.R. 1, One Big Beautiful Bill Act (Dynamic Estimate).
[2] FactSet, as of June 30, 2025
[3] Federal Reserve Bank of St. Louis; U.S. Office of Management and Budget via FRED, as of January 1, 2024.
Disclosures
The information provided is illustrative and for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
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