What you need to know about markets

Even with lots of news about trade, conflicts in the Middle East, and other geopolitical issues, the U.S. stock market went up this quarter while U.S. bonds helped keep things stable and protect investors’ portfolios. The rest of the year might be just as uncertain, so investors should be prepared to deal with some more ups and downs.

2Q25 market highlights

• The Fed kept interest rates the same: The Federal Reserve (Fed) has two main jobs (known as the dual mandate): to keep as many people as possible employed and to ensure prices don’t rise too much. Right now, they are worried that tariffs on imported goods might make things more expensive. But since a lot of people still have jobs and prices rose a bit earlier in the year, they decided not to change the interest rates when they met in May and June. (Remember lower interest rates would make it cheaper to borrow money, which encourages spending. Higher spending can lead to rising prices as demand for products and services may be higher than the available supply.)
• Favorable earnings helped U.S. stocks rise: U.S. companies did well in the first quarter. Profits grew by 13.7%, and revenues (from sales) increased by 5.0% for the S&P 500 index, which is made up of large U.S. companies. Despite a lot of uncertainty about trade and other issues at the beginning of the quarter, U.S. stocks rose in the quarter. The S&P 500 increased 10.57% in the quarter.
• Bonds offer protection during turbulence: Although the Federal Reserve didn’t change its reference interest rate, short-term bond yields (or coupon, which is the regular payment you receive from holding a bond) came down but longer-term (10-year) bond yields rose slightly. Overall corporate bonds prices fell for the quarter; the U.S. Bloomberg Aggregate Index declined 0.78%. (Bond prices move in the opposite direction of bond yields.) However, year-to-date, the Aggregate is still higher. The good thing: As stock prices fell in early April, bonds helped offset those losses, protecting portfolios as investors hoped they would.
• Increased unpredictability in the market: The macroeconomic environment got more turbulent because of trade tensions and ongoing conflicts. This made the market more volatile. The CBOE Market Volatility Index (VIX), which measures how much the stock market moves up and down, went up to over 50 in early April but dropped to below 17 by the end of the quarter. Negative news stories made it hard for company leaders and investors to predict how policies would affect consumers and economic growth. Even though investors didn’t let the headlines stop them and pushed stocks higher, the real test will be when companies report their financial results for the second quarter during the summer.
   

Investment outlook

Global markets

Global central banks are likely to lower interest rates to support their economies as growth continues to slow. But global trade tensions seem to be easing (although there may be flare ups occasionally). Investors can find attractive companies that are trading at a cheaper valuation than U.S. companies. Some countries that are built on manufacturing face even weaker growth due to the trade upheaval. But a weaker U.S. dollar may help them. (When the U.S. dollar is weaker, emerging market stocks tend to perform better.)

Voya Investment Management (VIM) take: We think that, in the long term, prices will continue to fall slowly (disinflation). However, tariffs might cause prices to go up in the short term.

U.S. stocks

There are a lot of contradicting factors impacting U.S. stocks. While people are still buying things, they are spending less money because they are not as confident about the economy since prices have been high for a while. The job market is still solid, but it’s starting to show some softness. There are still worries about inflation and tariffs, and interest rates are staying higher than some investors thought they would. These things might make companies less likely to invest in new projects, which could affect stock prices in the short term. Even with the uncertainty from tariffs, companies are expected to report good earnings for the second quarter.

VIM take: Right now, U.S. larger and mid-sized companies should benefit from consumer spending. In addition, they may be able to lower costs due to the use of artificial intelligence and automation. Smaller companies may have a harder time dealing with the higher interest rates (they can’t borrow money as cheaply). They also may have more trouble offsetting rising costs for parts and finished products because of tariffs, and continued growth in labor wages.

U.S. bonds

The key factors that support credit are still strong, but we’re keeping an eye on any problems that might come from higher interest rates. We think that high real interest rates and uncertainty in the world will make more investors want to put their money into fixed income investments, like bonds.

However, we’re a bit cautious because spreads (the difference between the interest rates on these bonds and safer government bonds) are very tight. (Tight spreads may limit the ability for bond prices to rise.)

VIM take: U.S. core bonds offer attractive yields that provide income, while the companies remain healthy and have a low likelihood of defaulting (not paying their coupon). Also, shorter-term bonds give investors the chance of benefiting from higher interest rates.

Market volatility

In the near term, investments that carry more risk (like stocks) may continue to deal with turbulence as investors watch for the Federal Reserve to lower interest rates, wonder if a recession might happen, and digest Trump policies and other global issues.

It’s hard to guess how stocks and bonds will perform, and this uncertainty might make some investors take their money out of the markets. However, we think as these concerns calm down, the markets will move higher.

VIM take: We expect the economy to grow more slowly, but we don’t believe there will be a recession right now.

Final thoughts

As we move into the second half of 2025, the markets remain a complex mix of opportunity and uncertainty. While strong corporate earnings and resilient consumer spending have supported U.S. stocks, ongoing geopolitical tensions, persistent inflation concerns, and elevated interest rates continue to challenge investor confidence. Bonds have played their traditional role as a stabilizer, offering income and protection during periods of volatility. Looking ahead, you should stay focused on long-term goals and maintain diversified portfolios that can help weather short-term fluctuations.