Key Observations
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.
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.
The views expressed in this commentary are subject to change based on market and other conditions. This document may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Certain targets within the presentation are estimates based on certain assumptions and analysis made by the advisor. There is no guarantee that the estimates will be achieved.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Clarendon Private’s strategies are disclosed in the publicly available Form ADV Part 2A.
Diversification does not ensure a profit or guarantee against loss. Asset Allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss. Index returns are unmanaged and do not reflect the deduction of any fees or expenses.
Comparisons to any indices referenced herein are for illustrative purposes only and are not meant to imply that actual returns or volatility will be similar to the indices. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income. You cannot invest directly in an Index.
S&P 500 is a capitalization-weighted index designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.Clarendon Private, LLC (“Clarendon Private”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Clarendon Private and its representatives are properly licensed or exempt from licensure. For additional information, please visit our website at https://www.clarendonprivate.com/ or the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Clarendon’s CRD # 316616