A volatile and historic quarter closed at all-time highs for the S&P 500 and NASDAQ Composite, which advanced 10.9% and 18.0% respectively. The quarter began with “Liberation Day” tariffs which sent markets tumbling. After bottoming on April 8 (at which point the S&P 500 and NASDAQ were down 15.0% and 20.8% for the year), equity markets moved steadily higher supported by tariff easing, solid first quarter earnings, bottoming consumer sentiment and resilient macroeconomic reads for inflation and the economy. The market plunge and rapid recovery reminds us how quickly equity markets can shift.
Much of the second quarter, appreciation was fueled by digitization and Artificial Intelligence (AI) themes. Among the “Magnificent 7”, Meta, Microsoft and NVIDIA advanced 35.6% on average. Amazon, Google, Apple and Tesla were up 11.0% due to perception that they are less well positioned for AI and/or have greater exposure to trade policy.
Entering the third quarter, equity and bond markets are navigating concerns over the economic and inflationary impacts of tariffs, geopolitical disruptions and U.S. fiscal policy. Leading economists and the Federal Reserve bank are signaling stagflationary conditions (slowing economic growth paired with rising inflation), while equity markets are anticipating continued growth with modest pressure on inflation.
Expected earnings growth for 2025 began the year at 14.3% and has been revised down to 9.4% currently, with 13.7% growth expected for 2026. Amidst a high level of uncertainty, the equity markets sit at historically high valuations. The S&P 500 index trades at a forward price to earnings multiple of 22x as compared to the past ten-year historical average of 18.7x.
A significant decline in equities is possible. However, if the economy holds up and inflation does not materialize, corporate earnings will accelerate and would likely be boosted by Fed rate cuts. This could bring cautious capital into the market and propel equities higher from here. In sum, we continue to expect a high level of volatility of share prices during the second half of 2025.
The information contained in this communication is provided for general purposes only, and was prepared in reliance on independent, third-party sources that Fairview Capital Investment Management, LLC (“Fairview Capital”), an SEC-registered investment adviser, believes are reliable. Nevertheless, Fairview Capital does not guarantee its accuracy or timeliness of any information provided herein. The information reflects subjective judgments, assumptions and Fairview Capital’s opinion on the date made and may change without notice; Fairview Capital is not obligated to update this information. Nothing in this communication should be construed as investment or tax advice, a solicitation, offer, or recommendation, to buy or sell any security. Investment management services are offered only pursuant to a written investment management agreement, which investors are urged to carefully read and consider in determining whether such agreement is suitable for their individual needs and circumstances. The information in this communication should not be construed as an endorsement, recommendation or sponsorship of any company or security. If this post mentions a specific investment or security, we or our affiliates may have a position in that security (either long or short), and we may profit from a price change in that security.
Investment management and advisory services–which are not FDIC insured–are provided by Fairview Capital. Any links provided to other sites are offered as a matter of convenience and are not intended to imply that Fairview Capital or its affiliates endorses, sponsors, promotes and/or is affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise. All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. Please see Fairview Capital’s Form ADV Part 2A and Form CRS for important details.
