Your Money, Your Update
A Quarterly Review of Investment Trends and Strategy From Our Investment Committee
Quarter 2, 2025
Join Sayer Martin, CFA, and John Burke, as they discuss major market happenings heading into the third quarter of 2025, including inflation, stocks & bonds, and the current market. Yes, they get into all of it! They also offer perspective on international markets and what else is to come in 2025.
*Filmed on July 2, 2025
Important Disclosures:
Investment advisory services are offered through Stone House Investment Management, LLC, an SEC-registered investment adviser. Registration with the SEC does not imply a certain level of skill or training. Investing involves risk, including the potential loss of principal. Past performance does not guarantee future results. Forward-looking statements reflect our current views as of the recording date and are subject to change. Indexes are unmanaged and cannot be invested in directly.
Q2 2025 Market Performance Overview
Despite a roller-coaster quarter, global equities managed to hold their ground and reach new highs, with U.S. stocks and international markets gaining. Here’s a quick snapshot of second quarter performance (as of June 30, 2025):
- US Stocks (SPY ETF): +10.5% (after a mid-quarter pullback of more than 10%)
- International Stocks (EFA ETF): +11.3% (helped by strong rebounds in European markets)
- Bonds (AGG ETF): +0.9% (on a slightly steeper yield curve)
- Gold (GLD ETF): +4.8% (benefiting from “safe haven” demand amid uncertainty)
Index performance is provided for illustrative purposes only. Indices are unmanaged, and it is not possible to invest directly in an index. Index returns do not reflect the deduction of advisory fees, transaction costs, or other expenses, which would reduce performance. Past performance does not guarantee future results.
Stocks Correct and Bounce Back
Tariff turmoil hit the stock market early in Q2. In fact, right after the “Liberation Day” tariff announcement in early April, the S&P 500 plunged into a “correction” – dropping over 10% from its peak in a matter of days. It was the second 10%+ drop this year, and it got investors’ hearts racing. On April 4th, headlines were blaring about the market’s 11% two-day slide and fear was running high. We’ve been here before. As a team, we reminded ourselves (and you, our clients) that market corrections are normal and the worst thing to do in the middle of a drop is to panic-sell. Our Flex portfolios also held cash through several days of this period, cushioning some of the choppiness.
Flex portfolios are designed to reduce volatility by holding cash during certain periods; however, this strategy does not ensure a profit or protect against loss in declining markets. Past performance is not indicative of future results.
Sure enough, the market found its footing and staged an impressive recovery. Once the tariff threats eased and cooler heads prevailed, buyers stepped back in. By early May, the S&P 500 had clawed back its April losses. Essentially, stocks went down, then up, almost in a V-shaped fashion. While the S&P 500 was off more than 15% for the year at the April lows, it was again setting new closing records by the end of June. This was ana historically impressive feat, as the 89 days between records (Feb through June) was the fastest-ever recovery back to a new high after a decline of 15% or more.
This round-trip reinforced a timeless lesson: staying invested through volatility tends to pay off. We didn’t make knee-jerk changes to our long-term strategy during the drop. Instead, we used the volatility as an opportunity to rebalance, which naturally involves selling assets that have held up better and buying those that have become undervalued. In hindsight, that discipline benefited us as the market bounced back.
Rebalancing does not ensure a profit or protect against loss. Staying invested through market volatility does not guarantee positive outcomes. Past performance is not indicative of future results.
The Value of Diversification Across Asset Classes
If Q2 continued to underscore one big investing truth, it’s the importance of diversification – not just across regions, but across asset classes. When stocks dropped, other assets held firmer, helping smooth out the ride.
Gold was again a bright spot. The combination of trade uncertainty, central bank reserve accumulation, and rising inflation worries has kept demand for gold strong. Commodities – especially oil – made headlines late in Q2 (more on the oil story in a moment). A spike in oil prices boosted commodity indexes and energy-related investments. And international returns have been bolstered by a selloff in the US dollar, which is off more than 10% on the year and finished its worst first-half of the year in decades.
All told, a mix of asset classes (U.S. stocks, international stocks, bonds, gold, commodities, etc.) helped ensure that while one investment was down, another was up (or down less). This balancing act is by design. Diversification won’t make volatility disappear, but it can make the swings much more manageable. In Q2, the strategy of not putting all our eggs in one basket proved its worth yet again.
Disclosure: Diversification does not ensure a profit or protect against loss in declining markets. Past performance is not indicative of future results.
The Fed: High Rates and Holding Steady
Switching gears to monetary policy – what’s the Federal Reserve up to these days? In short, the Fed was in “wait and see” mode last quarter. After an aggressive rate-hiking cycle in 2022-2023, the Fed paused rate changes in Q2 2025, keeping the benchmark Fed Funds rate in the range of 4.25% – 4.50%. This is roughly where rates have been since the end of last year. The Fed has spent much of the last two years raising rates to combat high inflation, and those efforts are still percolating through the economy.
At the Fed’s June meeting, the message was clear: We’re not in a rush to cut rates. Despite some political pressure and market hopes for rate cuts, the Fed is emphasizing that inflation is still a concern, especially with factors like tariffs potentially pushing prices higher. In fact, one reason the Fed gave for holding rates steady was the new tariffs – they explicitly noted that the trade measures could be inflationary, so they want to keep policy slightly restrictive as a counterbalance. The Fed also indicated it would need to see more evidence of economic slowing (particularly in the job market) before considering rate reductions. As of now, unemployment remains low and consumer spending, while softer, hasn’t collapsed. So, the Fed’s stance is basically “steady as she goes”.
For investors, a stable Fed can be a double-edged sword. On one hand, it removes some uncertainty – we’re not constantly worrying about the next Fed hike. On the other hand, it means borrowing costs are going to stay relatively high. Yields on savings and bonds are attractive, but borrowing is more expensive. Our portfolios have benefited from higher bond yields (we can finally get decent income from fixed-income investments!), and we’ve positioned our fixed-income strategy to take advantage of this. At the same time, we’re cautious about sectors that are rate-sensitive (like real estate or certain utilities) since higher financing costs can be a headwind for them. We’re also keeping an eye on the yield curve and credit markets for any signs of stress.
Our view is that the Fed will likely start cutting rates later this year, if not 2026. They themselves are forecasting a couple of cuts by the end of next year, but those “dot plots” have to be taken with a grain of salt. If inflation comes down faster or the economy unexpectedly falters, the Fed has room to ease. If growth chugs along and inflation stays sticky, they might hold pat longer. Either way, we’re prepared. We have built our fixed income exposure to be resilient whether rates stay flat or move gradually down. And if/when the Fed pivots to rate cuts, we’ll reassess the landscape. For now, though, the main point is: rates are the highest they’ve been in 15+ years, and the Fed is not rushing to change that. At the same time, the United States fiscal deficit remains unsustainably out of proportion with economic growth, keeping pressure on longer-term benchmark rates. It’s a new environment compared to the near-zero rates of the 2010s, but we are navigating it carefully, balancing income opportunities with interest-rate risk.
Forward-looking statements reflect current views as of the date of this material and are subject to change without notice. They are not guarantees of future performance, and actual results may differ materially. Positioning strategies to benefit from market conditions does not ensure a profit or protect against loss in declining markets. Past performance is not indicative of future results.
Oil Spikes on Middle East Conflict: Geopolitics Strike Again
As the quarter drew to a close, geopolitics took center stage. In June, news broke of a serious military conflict between Israel and Iran – including air strikes and missile exchanges. This was a jarring development (these nations have long had tensions, but an outright exchange of fire was not on most people’s bingo card for 2025). Global markets reacted swiftly, especially the oil market. Traders immediately feared that a broader conflict could disrupt oil supplies in the Middle East, either through direct damage to production or by closure of key transit routes (like the Strait of Hormuz, through which a huge chunk of the world’s oil is shipped).
Oil prices jumped almost instantly. In fact, on June 19th, Brent crude oil jumped nearly 3% in a single day to around $79 per barrel, the highest price since January. Just a month earlier, oil was trading in the low-$60s range, so this was a significant move up. The mere possibility of U.S. involvement in the conflict and a wider regional war put a noticeable risk premium on oil. Analysts started tossing out scenarios: What if the Strait of Hormuz is closed? (Possible answer: oil could shoot to $120+ in a worst case.) Even without doomsday scenarios, big banks like Goldman Sachs noted the market was pricing in about a $10 per barrel “worry factor” due to the situation.
Thankfully, by quarter-end the conflict had not escalated into a broader war. But it’s a fluid situation, and we’re monitoring it closely. Geopolitical risk is one of those ever-present factors that can flare up without warning. Our philosophy is not to try to predict such events, but to prepare insofar as we can – through diversification and prudent risk management. The key is not to panic and avoid gambling on geopolitical outcomes. We stay nimble and diversified.
One more thing to note: higher oil prices, if sustained, can feed into inflation and impact consumer spending (gasoline, heating oil, etc. become more expensive). So far, the move in oil, while sharp, is not enough to seriously threaten the economic outlook – especially since it might prove temporary if the conflict de-escalates. But it’s something on our radar. It ties back into the Fed’s calculus as well, as mentioned earlier.
In summary, the late-quarter geopolitical turmoil provides another reminder that the world is unpredictable, and 2025 is giving us plenty of plot twists. Through it all, we’re sticking to our process: adjust where needed, but keep focused on the long term.
Diversification does not ensure a profit or protect against loss in declining markets. Past performance is not indicative of future results.
Closing Thoughts and Looking Ahead Into Q3
After a wild first half of 2025, we’re pleased with how our portfolios have navigated the volatility. By leaning on diversification and discipline, we managed to participate in the upside (when markets rebounded) while having some cushion during the downturns (thanks to bonds, gold, Flex). As we head into Q3, our outlook is cautiously optimistic. We expect the market’s crosscurrents to continue – trade negotiations, Fed decisions, corporate earnings, and global events will all play a role in day-to-day sentiment. We don’t pretend to know exactly how each of those will play out, but we have a game plan for a variety of scenarios.
Our positioning is essentially balanced. We haven’t made major directional bets on interest rates or currencies – instead, we maintain a mix of assets that should perform in different environments. We’ve slightly tilted toward quality and value in equities, thinking they could hold up better if volatility returns. We’ve also ensured that our fixed-income duration is not too long, so that if rates do rise again (for instance, if inflation surprises to the upside), we won’t get hurt badly. At the same time, if the economy weakens and the Fed cuts rates next year, our bond allocation should benefit from price gains. It’s all about that word we keep using: diversification – across stocks, bonds, geographies, active and passive, and risk factors.
We appreciate your trust and confidence in us through the twists and turns.
Enjoy your summer, and we’ll check back in after Q3.
Important Disclosures
The information contained herein is for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any security. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.
Index performance is provided for comparison purposes only. Indices are unmanaged, and it is not possible to invest directly in an index. Index returns do not reflect the deduction of advisory fees, transaction costs, or other expenses, which would reduce performance.
This material may contain forward-looking statements based on current expectations, estimates, projections, and opinions of Stone House Investment Management, LLC, as of the date indicated. Such statements are subject to change without notice and actual results may differ materially.
Diversification does not ensure a profit or protect against loss in declining markets.
Data and statistics are obtained from sources believed to be reliable, but Stone House Investment Management, LLC, does not guarantee their accuracy or completeness.
Investment advisory services are offered through Stone House Investment Management, LLC, an SEC-registered investment adviser. Registration with the Securities and Exchange Commission does not imply that Stone House Investment Management, LLC or its representatives has achieved a certain level of skill, certification or training or that the SEC approves of Stone House Investment Management, LLC or its services.
The S&P 500 is a stock market index that tracks the performance of 500 of the largest U.S. companies. It’s often used as a snapshot of how the U.S. stock market is doing overall.
GLD is an exchange-traded fund (ETF) that aims to track the price of gold. It gives investors an easy way to get exposure to gold without having to buy and store physical gold.
SPY is an ETF that tracks the S&P 500 index. It’s one of the most popular ways for investors to invest in the overall U.S. stock market.
EFA is an ETF that tracks major companies in developed countries outside the U.S. and Canada, like Europe, Japan, and Australia. It’s a way to invest in international stocks.
AGG is an ETF that tracks the U.S. bond market. It includes a mix of government, corporate, and other bonds, making it a way to invest in the overall bond market.
Sources
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