Executive Summary
The S&P 500’s journey through the first half of 2025 reads like a financial thriller, complete with dramatic plunges, stunning recoveries, and nail-biting uncertainty. For the first half of the year, the S&P 500 and Nasdaq Composite have each risen 5.5%, while the Dow has added 3.6%, but these modest gains mask one of the most turbulent six-month periods in recent market history. The benchmark index plummeted nearly 19% in April during the height of tariff-induced panic, only to stage a remarkable comeback that saw it reach new all-time highs by the end of June, closing above 6,200 for the first time.
The Tariff Shock That Rocked Markets
The defining event of H1 2025 was President Trump’s April 2nd announcement of sweeping tariffs, which sent markets into a tailspin. The S&P 500, the widely followed index that underpins the retirement accounts of millions of Americans, sank into a deep correction after President Donald Trump announced sweeping tariffs, rattling financial markets in March and April. The initial proposal included a baseline 10% tax on all U.S. imports, plus additional “reciprocal” tariffs on imports from 90 countries.
The market reaction was swift and severe. The sell-off began on April 3, the day after Mr. Trump unveiled tariffs on imports from almost every nation, with the S&P 500 experiencing what some called its worst performance in five years. The S&P 500 closed at its lowest level in almost a year. The Dow and Nasdaq both closed at their lowest level since January 2024.
The Wild Swings of April
April 2025 will be remembered as one of the most volatile months in market history. The S&P 500 swung about 7% — initially starting out strongly positive but finishing the day down 1.6% during several trading sessions. False rumors about tariff pauses sent stocks temporarily surging, only to see gains evaporate when the White House dismissed such reports as “fake news.”
Sector Performance: A Tale of Rotation
The first half of 2025 showcased dramatic sector rotation as investors navigated the changing landscape:
Q1 2025 Sector Performance
While the overall index ended the quarter in negative territory, defensive sectors—those that tend to hold up better in market downturns—fared relatively well:
- Energy: Led all sectors with a 9.3% return, partly due to rising natural gas prices
- Healthcare: Gained 6.1%
- Consumer Staples: Rose 4.6%
- Utilities: Added 4.1%
Meanwhile, growth sectors suffered significant losses:
- Information Technology: plunged 12.8%—dragging the index into negative territory as mega-cap stocks stumbled amid economic uncertainty and interest rate volatility
- Consumer Discretionary: saw the sharpest losses, down 14% in Q1 2025
Q2 2025: The Tech Comeback
The second quarter told a different story. Nine of the 11 sectors posted gains in June, with technology staging a remarkable recovery. It’s a turnaround from the market’s tech-driven recovery in the second quarter: The Technology Select Sector SPDR Fund (XLK) jumped nearly 23% in that period.
The Federal Reserve’s Balancing Act
The Federal Reserve maintained a cautious stance throughout H1 2025, keeping rates steady as it assessed the impact of trade policies. In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent at its June meeting.
Fed Chair Jerome Powell’s approach has been characterized by patience, with Powell citing a resilient economy as he argues for a patient approach to rate cuts. The strength of the US economy, he has said, gives the Fed time to assess whether President Trump’s tariffs will, in fact, push inflation higher over the summer.
Rate Cut Expectations
Market expectations for rate cuts have shifted dramatically. Forecasters expect the Fed to have enough clarity about the impact of President Donald Trump’s tariffs to start cutting interest rates in the second half of the year. A few forecasters see a rate cut coming in July, while some expect the cuts to start in December. Financial markets are betting on September as the start date.
Corporate Buybacks Hit Record Levels
One notable support for equity prices came from corporate buybacks. Q1 2025 share repurchases set a quarterly record at $293.5 billion, up 20.6% from Q4 2024’s $243.2 billion expenditure, and up 23.9% from Q1 2024’s $236.8 billion.
Technology companies led the charge, with Information Technology maintaining its lead in buybacks, as its expenditure’s increased 25.8%, as it represented 27.3% of all buybacks for the quarter. Apple alone spent $26.2 billion on buybacks in Q1, ranking as the fourth highest in S&P 500 history.
The AI Revolution Continues
Despite the volatility, artificial intelligence remained a dominant investment theme. Nvidia emerged as a clear winner, with its stock becoming the second-largest listed U.S. company, behind Microsoft, based on market capitalization value. Its market cap reached more than $3.2 trillion, surpassing Apple.
The AI boom extended beyond just chip makers. The AI boom also extended to certain utilities and energy equipment stocks — which are expected to benefit from AI data centers’ electricity needs. NRG Energy soared more than 79 percent, while the gas-powered turbine manufacturer and service provider GE Vernova jumped about 60 percent.
AI Sector Performance Highlights
- Shares of AI chipmaker and semiconductor companies Nvidia and Broadcom surged more than 17 percent and 19 percent, respectively, in the first six months of the year, while Intel grew 12 percent
- Nvidia reported revenue of $44.1 billion for its fiscal first quarter ending April 27, 2025. This revenue was up 12% from the previous quarter and up 69% from one year prior
Market Concentration Reaches Historic Levels
One concerning trend that continued in H1 2025 was increasing market concentration. The top three stocks now make up nearly 21 per cent of the Index’s market value, while the top 10 stocks account for over 36 per cent. This concentration is the highest in the history of the S&P 500 Index.
This concentration created significant performance divergence, with Just five stocks – Microsoft, Apple, Nvidia, Amazon and Meta – accounted for more than half of the Index’s total return.
Looking Ahead: H2 2025 Outlook
As we enter the second half of 2025, several key factors will shape market direction:
1. Tariff Resolution
The 90-day pause on many tariffs expires July 9th, creating a critical decision point. An April plan to levy import taxes on dozens of countries was paused for 90 days — set to expire by July 9 — as negotiations continue.
2. Federal Reserve Policy
With A Fed rate cut perhaps as early as September, the likelihood of which is currently 75 per cent, monetary policy could provide a catalyst for broader market participation.
3. Earnings Growth
earnings (which start July 15 with the big banks), where Q1’s general “we don’t know, but we’ll work through it” attitude likely won’t be sufficient to justify (or hold up multiples for) the expected record earnings for the second half, with an estimated 18% year-over-year increase.
4. Economic Growth Concerns
In 2025, Trump’s imposed and scheduled tariffs will increase federal tax revenues by $171.1 billion, or 0.56 percent of GDP, making the tariffs the largest tax hike since 1993, potentially impacting economic growth.
Key Risks for the Second Half
- Tariff Escalation: Further trade tensions could reignite market volatility
- Inflation Persistence: Tariffs may push inflation higher, complicating Fed policy
- Valuation Concerns: With the S&P 500 at record highs, valuations appear stretched
- Geopolitical Tensions: Ongoing global uncertainties could impact markets
- Market Concentration: Heavy reliance on a few mega-cap stocks increases systemic risk
Conclusion
The first half of 2025 demonstrated both the fragility and resilience of U.S. equity markets. From the depths of a near-bear market in April to record highs in June, the S&P 500’s journey reflected investors’ ability to look past immediate uncertainties toward longer-term opportunities.
Sam Stovall, chief investment strategist at CFRA, said both 2023 and 2024 ended in bull markets — and few two-year bull markets turn into three-year runs. This historical perspective suggests caution may be warranted, even as momentum remains positive.
As we move into the second half of 2025, the market’s ability to broaden beyond its current narrow leadership will be crucial. The resolution of trade tensions, Federal Reserve policy decisions, and corporate earnings growth will all play pivotal roles in determining whether the S&P 500 can build on its mid-year momentum or face renewed challenges.
For investors, the lesson from H1 2025 is clear: in an era of rapid policy changes and technological disruption, maintaining a diversified portfolio and a long-term perspective remains more important than ever. The market’s dramatic swings serve as a reminder that volatility can create both risks and opportunities for those prepared to navigate uncertain waters.
Terry brings over 25 years of experience in stock and options trading, having actively navigated markets since 1999. A seasoned trader who has weathered multiple market cycles—from the dot-com boom and bust through the 2008 financial crisis to today’s dynamic markets—he combines deep market knowledge with technical expertise.
As a developer and digital creator, Terry has built and launched multiple financial websites and trading tools, bridging the gap between complex market analysis and accessible financial information. His unique perspective comes from hands-on experience on both sides of the screen: as an active trader executing strategies and as a developer creating platforms that serve the trading community.
Terry’s coverage focuses on actionable market analysis, options strategies, and technical insights drawn from real-world trading experience. He specializes in identifying market trends, analyzing options flows, and translating complex market movements into clear, practical insights for traders at all levels.
When not analyzing markets or developing new tools, Terry continues to actively trade and test strategies, ensuring their analysis remains grounded in current market realities.