Midyear Review: Stocks’ Climb Is Challenged During Volatile First Half
KEY TAKEAWAYS
- The S&P 500 recouped earlier losses and was slightly higher near the year’s midway point.
- Market volatility returned in April, approaching levels not seen since 2020 and 2008.
- Value stocks outperformed growth stocks globally, but small caps lagged large caps.
- Click Here for Quarterly Summary
Markets took investors on an up-and-down ride during a volatile first half of the year, with notable swings coming amid uncertainty about the impact of tariffs on the US and the global economy. In the US, while the S&P 500 hit new highs in February, it also posted sharp falls in April, before rebounding in May to end slightly higher as of June 20.1 In a reversal of trends in recent years, developed international equity markets outpaced the US, as did emerging markets (see Exhibit 1). The US Federal Reserve held interest rates steady, citing risks of higher inflation and a rise in unemployment. In the bond market, US Treasuries were higher, with the benchmark 10-year yield just below 4.3%.2
Exhibit 1: World Class Returns, international vs. US stocks, January 1, 2025-June 20, 2025
The new US presidential administration took office in January, later threatening or imposing tariffs on goods from a number of countries. The S&P 500 then fell by a combined 10.5% on April 3 and 4, marking the biggest two-day drop since the onset of the COVID-19 pandemic in March 2020. But, just a week later, on April 9, the index rose by 9.5% when the administration announced a 90-day pause on tariffs. Stocks subsequently continued their upward trend amid policy shifts and delays implementing tariffs.3
The Fed kept the federal-funds rate unchanged in the 4.25%–4.5% range in May and June, but officials warned that uncertainty about the economic outlook remained elevated.4 On inflation, the US core consumer price index, which excludes more-volatile food and energy items, showed prices rose 2.8% from a year earlier in May, the most recent data available—higher than the Fed’s target rate of 2%.5
Approaching the year’s halfway point, the S&P 500 Index was up 2.1% and the tech-heavy Nasdaq was ahead 1.0%. Both indices at one point in April had fallen 20% from their previous highs. Global equities, as measured by the MSCI All Country World Index, rose 6.2% as of June 20, even amid conflict in the Mideast that escalated in mid-June. Developed international stocks rose 15.5%, as measured by the MSCI World ex USA Index. The MSCI Emerging Markets Index gained 12.0.%.8 The outperformance of international markets is further evidence of the benefits of global diversification.
In the bond market, US Treasuries were 2.8% higher, sending the yield on the benchmark 10-year Treasury bond down to 4.28%.9 The broader bond market was also higher, with the Bloomberg US Aggregate Bond Index up 2.9% and the Bloomberg Global Aggregate Bond Index (hedged to USD)—a broad benchmark of sovereign and corporate debt—climbing 2.3% as of June 20.10
Market volatility may be unnerving, but it is also a sign of a working market. Whether responding to economic forecasts, consumer price changes, or tariff policy updates, market prices adapt to new information. It would be surprising if markets didn’t have reactions that are reflective of impactful events. So while the news headlines may be concerning, market turbulence historically has subsided, giving investors good reason to resist making changes. Pain one may feel now reflects markets setting prices such that expected returns are always positive. So when the market experiences a sudden drop, remaining committed to a plan can help investors avoid day-to-day worries—and set them up for the long-term rewards that the market can offer.
1. S&P data © 2025 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Data as of June 20. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
2. Returns are based on the Bloomberg US Treasury Bond Index as of June 20. Bloomberg data is provided by Bloomberg Finance LP. Source for US Treasuries: US Department of the Treasury.
3. Rob Wile, “Stocks Unleash Remarkable Comeback After a Historic Dive from Trump’s Tariffs Announcement,” CNBC, May 4, 2025.
4. The federal-funds rate is the overnight interest rate at which one depository institution (like a bank) lends to another institution some of its funds that are held at the Federal Reserve. Source: “Federal Reserve Issues FOMC Statement,” Federal Reserve, June 18, 2025.
5. Inflation data is as defined by the consumer price index (CPI) from the US Bureau of Labor Statistics; the core CPI is an aggregate of prices paid by urban consumers for a typical basket of goods, excluding food and energy; Lucia Mutikani, “US Consumer Prices Rise Moderately; Tariffs Seen Fanning Inflation,” Reuters, June 11, 2025.
8. MSCI data © MSCI 2025, all rights reserved. Data as of June 20. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
9. “Daily Treasury Par Yield Curve Rates,” US Department of the Treasury. Data as of June 20.
10. Bloomberg data provided by Bloomberg Finance LP.
The information in this material is intended for the recipient’s background information and use only. It is provided in good faith and without any warranty or representation as to accuracy or completeness. Information and opinions presented in this material have been obtained or derived from sources believed by Dimensional to be reliable, and Dimensional has reasonable grounds to believe that all factual information herein is true as at the date of this material. It does not constitute investment advice, a recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. Before acting on any information in this document, you should consider whether it is appropriate for your particular circumstances and, if appropriate, seek professional advice. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized reproduction or transmission of this material is strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.
This material is not directed at any person in any jurisdiction where the availability of this material is prohibited or would subject Dimensional or its products or services to any registration, licensing, or other such legal requirements within the jurisdiction.
“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.