July 2025 Market Update: Markets Hit Record Highs… Are Many investors Flying Blind?
- jbrowning08
- 7 days ago
- 6 min read
July 2, 2025
John Browning, MBA and CSA® | CEO, Principal
The Bottom Line at the top: The second quarter demonstrated both market volatility and resilience as investors navigated policy changes, global tensions, and innovation moving forward at breakneck speed. Investors who maintain perspective and focus on asset allocation and risk mitigation strategies continue to thrive. At the same time, those who rely on the latest headlines and news articles may not fare as well.
At Guardian Rock Wealth, we serve top performers in their fields who understand that proper wealth management isn't about winging it; it's about aligning your financial planning with a broader strategy that protects and multiplies assets. What I have found is that successful professionals want to understand the 'why' behind the 'what' that is going on. Some prefer to watch our podcast, others enjoy listening to the daily market update, and some would rather read our written monthly update. So here is the written update for July!
President Eisenhower is quoted as saying, “What is important is seldom urgent, and what is urgent is seldom important.” This captures much of what investors face as we head into July. There seems to be more distracting “noise” than usual that seems urgent but may not be as important as the headlines would have you believe. Meanwhile, beneath the loud headlines, the stronger currents may well be much more critical. You can learn a lot from headlines, as they often represent what Wall Street and some politicians want you to focus on. We would rather focus on why those folks would like us, the mainstream, to concentrate on those things. This gives both us and our clients an potential unfair advantage.
Despite tariff tremors from D.C. and rising tensions in the Middle East, stocks not only recovered but posted some of the fastest gains in history this past month. Meanwhile, many investors (and their advisors) were either panicking or passively watching from the sidelines, only to start piling back in as prices continued to rise. In our opinion, this seems to be a flawed plan.
Key Takeaways from Q2: Market Records, Policy Risk, and Strategic Opportunity
The S&P 500 gained 10.6%, while the Nasdaq surged 17.7%—both hitting new records. The Dow rose 5.0%.
Bonds hung in there with the U.S. Aggregate Index up 1.2%. Treasuries and corporates recovered from some early volatility. (See chart below for some perspective. . . bonds still are not exactly winning any performance awards for most portfolios.)
Gold hit an all-time high of $3,431 before settling at $3,308. Bitcoin hovered near $107,000.
The U.S. Dollar Index fell, aiding U.S. exports and international market performance.
Inflation has not risen as much as some feared but remains sticky at 2.4% CPI and 2.8% core CPI, and the Fed, always looking in the rear-view mirror, unsurprisingly held rates steady at 4.25%-4.5%. (While many like to berate the Fed for this, it is their mandate and, as such, should not be surprising.)
The Israel-Iran conflict sent temporary shockwaves before a carefully orchestrated ceasefire calmed markets and brought oil prices back down.
Moody’s downgraded U.S. credit, citing rising debt ($36 trillion and counting) and a lack of fiscal discipline.
The equity market rebound was widespread, with many sectors, styles, and regions delivering positive outcomes. International stocks are expected to continue leading the way in 2025, particularly with the weakening of the dollar. Small-cap stocks have lagged other parts of the market due to their greater sensitivity to tariffs and high interest rates. The Russell 2000 index remains down 2.5% year-to-date.
Technology experienced a strong recovery and contributed significantly to the rally; however, other sectors also played a part, including Industrials, which are now up 11.4% on the year, Communications, which gained 10.2%, and Financials, up 7.5%. On the other end, Healthcare and Energy saw weakness.
The dollar continued to weaken
The U.S. dollar weakened through the second quarter despite tariff pressures. While a weaker dollar can be negative for consumers, it can be positive for U.S. businesses and exporters, since it becomes cheaper for those using foreign currencies to buy our goods. While the dollar has declined this year and is near the low end of its range since 2022, its value is still high compared to the past decade. While some are calling for the demise of the dollar as the world's reserve currency, we acknowledge this concern but do not share it.
While we had expected unemployment to begin showing signs of weakening, we have not seen as much of this as anticipated. We believe the reasons are multifaceted. While many jobs continue to be eliminated by DOGE efforts, many of those severance packages have not yet expired, and others are currently under legal review. We also continue to see jobs eliminated by Artificial Intelligence optimization, while at the same time, deportation activities have opened up other jobs not previously available. We still expect unemployment numbers to rise and strain the economy, but possibly not by as much or as soon as we had expected.
This month, we may learn more about how tariffs will unfold, but expect inflation to remain under pressure to the upside and GDP to remain under pressure to the downside for the remainder of the year. Officials now expect inflation to reach 3% in 2025 before moderating to 2.1% by 2027, marking an upward revision from earlier forecasts. They also expect real GDP growth to slow this year to 1.4%, a downgrade from a 1.7% projection in March. These adjustments reflect concerns that tariffs could lead to inflation and slow economic growth. The conflict between Israel and Iran added another layer of complexity to an already challenging environment. Israeli strikes on Iranian nuclear facilities and military targets beginning June 13 created immediate concerns about regional stability and potential escalation, particularly for the oil markets. However, the two countries agreed to a ceasefire after 12 days. Meanwhile, the conflict in Ukraine continues unabated, with both sides continuing to launch large-scale drone strikes.
Further adding to the drama, budget discussions and the “big beautiful bill” continue in Washington, bringing renewed attention to America's fiscal trajectory. The national debt now exceeds $36 trillion, or approximately $106,000 per American. According to the Congressional Budget Office, the latest budget proposal could add an estimated $3.3 trillion in deficits over the next decade, which Republicans argue will not materialize due to the promised economic growth. While the proposal includes spending reductions, these are outweighed by tax cuts and spending increases elsewhere.
The market remains more volatile than in most years. Investors should be prepared to withstand another potential significant drawdown in the coming weeks and months. This makes creating the appropriate amount of cash flow in your portfolio of paramount importance, as well as the appropriate amount of downside protection. While volatility creates exciting opportunities, often not where most of the market is looking, the downside risks can be disconcerting without the proper consistency, process, diversification, and understanding. Please speak with a qualified professional before attempting to manage your financial future based on headlines, news articles, or any publication, including this one. We see tremendous opportunities for a prudent investor as well as many potential pitfalls.
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