Q2 2025 Financial Report: A Return to Normalcy? Almost.

Ignore the noise from D.C., and things are looking surprisingly solid. Yes, Q1 GDP hit a wall, but mostly because businesses and savvy consumers front-loaded orders ahead of looming tariffs. No collapse, just timing.

Now, Q2 GDP projections are downright giddy, clustering between 2.0% and 2.5%. Meanwhile, Jerome Powell may be taking flak from the Commander-in-Chief, but the data speaks: unemployment is a tame 4.2%, headline inflation sits at 2.4%, and wage growth is a healthy 4.0%. We’ll take it.

Of course, storm clouds never fully clear. As of July 8th (3:45pm MDT, if you're counting), effective tariffs still sit at 15%, and the AI-driven wave of creative destruction is just getting warmed up.

Still, the markets are partying like it’s 2017:

• Stocks jumped 11% in Q2, and thanks to a falling dollar, foreign markets did even better for U.S.-based investors.

• Bonds – so long as you kept duration in check – posted positive returns. And yes, the more credit risk you took, the better your portfolio looked.

• Commodities took a hit, mostly thanks to falling oil prices, and domestic REITs also struggled.

• Meanwhile, infrastructure and hedge fund strategies quietly posted 3%–5% gains.

All told? This looks... weirdly normal. The first half of 2025 was whacky, no doubt – but don’t expect the fireworks to stop.

Stay frosty, stay diversified, and welcome to Part Two.

Highlights

• Q1 GDP currently stands at -0.5%, primarily due to negative net exports of -4.6%

• Effective tariff rates down from 30% to 15% (still the highest since the late 1930’s)

• Unemployment for May at 4.2%, wage growth at 4.0%

• Headline inflation for May at 2.4%, Core at 2.8%

• Worldwide stocks up 11% - 12% in the second quarter

• YTD, DM stocks up 19.9%, EM up 15.6%, and the US 5.7%

• USD down 11% in 2025

• 3-month T-Bill at 4.4%, 10-year Note at 4.2%, 30-Year Bond at 4.8%

• Domestic bonds up 1.2% for the quarter and 4.0% YTD.

• Short-term bonds up 1.2% for the quarter while long-term bonds down 1.6%

• Commodities down 3.1% for the quarter

• Domestic REITs down 1.3% for the quarter

• Global infrastructure rose 4.8% for the quarter and 12.7% YTD

Components of GDP Growth

Ruffling more than a few feathers, Q1 2025 GDP came in at -0.5%. Yes, that’s a minus sign. But before declaring the fall of the republic, take a closer look: nearly all of the decline came from a whopping -4.6% in net exports. Why? Businesses (and some savvy consumers) rushed to place orders with China & Co. ahead of the looming tariffs – pay now, panic later. The rest of the GDP components? Pretty much in line with historical norms while a couple even excelled. So relax and breathe easy… for now.

Source: BEA, FactSet, J.P. Morgan Asset Management. Guide to the Markets - U.S. Data are as of June 30, 2025

Oil Markets

Oil prices have come a long way down since their early 2022 peak of $124 per barrel – closing out the quarter just north of $65. And that’s despite Venezuela going offline, Houthis taking potshots in the Red Sea, Israel going full Rambo on Iran, and Russian oil flows to the West getting (sort of) choked off. So what gives? Two words: U.S. energy independence. Love it or hate it, fracking has been a game-changer. Of course, now we are starting to turn our backs to the world, historically not a good thing. 

Source: BEA, FactSet, J.P. Morgan Asset Management. WTI crude prices are continuous contract NYM prices in USD.  Net oil imports as a share of nominal GDP calculated using seasonally adjusted data reported at annual rates. Guide to the Markets – U.S. Data are as of June 30, 2025.

Capital Gains by Investment Vehicle

It doesn’t get much airtime these days, but one of the long-standing knocks on traditional mutual funds is their tax inefficiency, especially when markets drop and investors stampede for the exits, triggering taxable gains for everyone left behind. Enter ETFs. With their slick structure, they’ve flipped the script on tax exposure. As shown here, passive ETFs distribute less than half the capital gains of their mutual fund cousins. Heck, even active ETFs are more tax-efficient than passive mutual funds. Mic drop. Game changer.

Source: Morningstar, J.P. Morgan Asset Management. Capital gains are the taxable profits made when an asset is sold for more than its initial purchase cost. “Weighted” capital gains are the capital gains paid by an investment vehicle divided by its Net Asset Value (NAV). NAV is the per-share value of a fund, calculated by subtracting the fund’s liabilities from its total assets and dividing the result by the number of outstanding shares. This slide comes from our Guide to ETFs. Guide to the Markets – U.S. Data are as of June 30, 2025.

Growth and Evolution of the ETF Market

Thanks to superior tax efficiency, greater transparency, and lower costs, ETFs have rocketed from $4.2 trillion to $11.5 trillion in assets over the past five years, a 175% total increase for the math-inclined. And the story keeps evolving: actively managed ETFs are now entering the spotlight, gaining traction at a rapid clip. Bottom line? Traditional mutual funds are in a world of hurt. And if the defined contribution world ever decides it no longer needs them? That’s not just a shift – that’s game over.

Source: Bloomberg, J.P. Morgan Asset Management. “Market-cap weighted” ETFs are index-linked passive investment vehicles. “Factor” ETFs are ETFs that focus on specific factors or characteristics and are passively linked to a custom index. *The “ETF Rule,” officially SEC Rule 6c-11, went into effect in December 2019 and modernized regulation of ETFs as open-ended funds by establishing a clear and consistent framework for most ETFs across both index and actively managed strategies, enabling ETF issuers to bring new strategies to market, and permitting “custom in-kind” creation and redemption baskets to be available for all types of covered ETFs under the new regulation. This slide comes from our Guide to ETFs. Guide to the Markets – U.S. Data are as of June 30, 2025.

Returns and Valuations by Style

Many investors like to slice and dice the stock market into styles – growth, value, large, small. It’s a classic move with some merit, though the high correlations between styles mean only modest diversification benefits in practice. Over the past decade, it’s been all about large growth stocks stealing the show, while small value has played the understudy. So far in 2025, that trend holds: core large caps are up a solid 6.2%, while small caps – regardless of style – are still swimming in the red. And yes, just about every style is expensive today, kind of like residential real estate. 

Source: FactSet, FTSE Russell, Standard & Poor’s, J.P. Morgan Asset Management. All calculations are cumulative total return, including dividends reinvested for the stated period. Returns are not annualized. Since market peak represents the period from January 3, 2022, to June 30, 2025. Since market low represents the period from October 12, 2022, to June 30, 2025. For all time periods, total return is based on Russell style indices except for the large blend category, which is based on the S&P 500 index. 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 FactSet. Past performance is not indicative of future returns. Guide to the Markets – U.S. Data are as of June 30, 2025.

Performance - Equities

Whether your cup of equity tea is filled with domestic, developed international, or emerging market stocks, you did just fine in Q2. Foreign shares led the charge with a roughly 12% gain, while the U.S. market trailed only slightly with an 11% return. For the first half of the year, a notably weaker dollar helped boost foreign equity returns to a dazzling 16–20% for U.S.-based investors – damn the trade conflicts, the war in Ukraine, and any other geopolitical torpedoes. Sector-wise, it was tech or bust. Most everything else muddled along.

Performance – Fixed-Income

Ah, the Agg. Our go-to barometer for the U.S. bond market is finally flashing signs of life. Up 1.2% in Q2 and a respectable 4.0% YTD – what’s not to like? Bonds are even beating out staid old cash. That is, if you kept your duration short. Long-term bonds continued to bleed in Q2. Over the past year, short-term bonds gained 5.7%, while long-term barely eked out 1.5%. Not ideal, especially with inflation eating away 2.4% over that stretch. But sprinkle in a dose of emerging market bonds in their local currencies, now you’re talking.

Performance – Alternatives

Outside of commodities, alternatives held their own. Hedge fund strategies ticked up 3% - 4%, while real estate and global infrastructure posted solid gains of 4.6% and 4.8%, respectively. Infrastructure, in particular, has been the belle of the ball, up 12.7% over six months and a whopping 25.4% over the past year. Nice indeed. As for country-level real estate, Germany stole the show last quarter, but France still holds the crown over the past year. The U.S.? Not so good as domestic REITs lost 1.3% last quarter and trail most other countries.

Copyright © Consilium, LLC. Commentary and opinions herein consist of subjective judgments and are subject to change without notice, as are statements of economics, investments, and financial markets. Information provided is believed to be reliable but does not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument, security, or financial advisory service. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide for, accounting, legal, investment or tax advice. Investing may involve a greater degree of risk and increased volatility than readers of this publication may be aware of or comfortable with. Past performance does not equate to future results. Data source: JP Morgan Guide to the Markets and Morningstar Direct. Consilium, LLC – Registered Investment Advisor.