Q2 2025 Market Outlook

MARKET OUTLOOK

The second quarter of 2025 unfolded in a world of heightened volatility and unpredictability. Geopolitical tensions, abrupt policy shifts, and weakness in leading economic indicators tested the resilience of investors and the market. From escalating trade disputes to growing unease over democratic norms, the global environment became more difficult to navigate with ripple effects felt across economies and our daily lives.

The second quarter opened with President Trump’s announcement of “Liberation Day”. These reciprocal tariffs targeted key U.S. trade partners and immediately unsettled global markets. The fear of a broader trade war quickly spread, consumers were fearful of rising prices, and consumer confidence quickly tanked. As the quarter went on, we faced harsh deportation policies, DOGE actions, political violence, and geopolitical risks in the Middle East, capping a period defined by volatility and a threat to American values.  In this environment of uncertain times, the resilience of investors and markets was tested like never before.

President Trump’s aggressive tariff initiatives revealed the limitations of brute force trade policies. Many measures were reactive and poorly calibrated, prompting partial reversals or delays by the administration. For decades, U.S. policy has been the cornerstone of global economic stability. Now, declining capital inflows, a strained consumer base, and a deteriorating network of international alliances have contributed to a more fragile economic position. Despite the early turmoil, equity markets mounted a rebound as trade tensions eased, lifting major indices near record highs. However, this recovery has masked the underlying fragility in a world where headline risk is constant and broad-based economic pressures are mounting.

While the U.S. grappled with reactive policymaking, Europe appeared to embrace a more proactive, long-term approach. Structural reforms are underway that could meaningfully alter the region’s economic outlook. Germany’s pivot from fiscal conservatism to greater spending marks a significant shift. Increased investments in defense, infrastructure, and innovation are likely to stimulate domestic demand and position Europe more favorably amid growing global fragmentation. These developments could create tailwinds for sectors such as defense, consumption, and technology, and we continue to find new investment opportunities in European equities.

As we reflect on the second quarter of 2025, two troubling trends emerged during the quarter. The first trend was the normalization of chaos. Investors and the public are becoming desensitized to frequent and severe disruptions. Trade shocks and military escalations, which were once considered rare occurrences, are now met with a troubling sense of normalcy. As markets and investors grow numb to disruptions, we foresee an increase in volatility and overall instability. Another trend was the deferral of structural challenges. Short-term measures, such as reactive policy reversals and deadline extensions, have provided temporary market stability. However, these actions merely postpone addressing deeper structural issues. While the U.S. equity market may experience short-term rallies, this approach delays the inevitable, allowing unresolved problems to potentially resurface, perhaps with greater impact in the future.

Despite the challenges, the second quarter of 2025 also highlighted the importance of discipline and perspective. At Zevin Asset Management, our commitment to rigorous bottom-up research, a strategic view of macroeconomic trends, diversified asset allocation, and sustainable investing has allowed us to navigate this turbulent period with resilience and clarity. As we look toward the second half of 2025, the environment will likely remain volatile and policy dependent, yet we believe long-term success will be defined by patience, discipline, and thoughtful risk management. We remain focused on identifying opportunities amid uncertainty and building durable portfolios that can thrive across cycles.

Impact Update

In this moment in history, it is critical that we continue raising troubling issues directly with companies.  In the second quarter of 2025, we stepped up to voice the concerns of human rights advocates, employees, and investors at the Alphabet annual shareholder meeting regarding the risks of AI use in conflict zones. We are also shining light on contracted data workers as we engage in dialogue with Microsoft and Accenture. We wrote to Apple to register investor concerns about the recent attacks on shareholder rights by the Business Roundtable (BRT), where Apple is a prominent member and urged Apple to clarify its position and speak out against the BRTs recommendations. We also joined several statements to signal strong solidarity with those who are standing up for civil rights and the enfranchisement of marginalized people. Read our Q2 2025 Impact Update to learn more.

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