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July 3, 2025 – The second quarter of 2025 delivered a stellar performance for U.S. equities, with impressive gains across major indices driven by strong corporate earnings, AI enthusiasm, and eased trade tensions. Despite this rally, the market successfully navigated challenges including early tariff anxieties, signs of consumer stress, and geopolitical uncertainties. Looking ahead, investors are keenly watching the “One Big Beautiful Bill Act” and its potential impact on interest rates, inflation, and corporate profitability.

//  by Tower Bridge Advisors

The Second Quarter’s Grand Finale: A Market Fireworks Show
As we celebrate the Fourth of July, the second quarter of 2025 delivered a truly spectacular performance for U.S. stocks. After a somewhat subdued start to the year, the market roared back with impressive force, illuminating portfolios with significant gains. The Dow Jones Industrial Average rose 5%, the S&P 500 surged 11%, and the technology-heavy Nasdaq Composite led the way with an explosive 18% gain.

What Fueled the Rally?
Several factors ignited this quarter’s performance. A crucial element was the “trade policy off-ramps,” which significantly eased earlier anxieties despite initial “Liberation Day” announcements. Corporate earnings were also a major driver, with the S&P 500’s earnings increasing a remarkable 13% year over year. This was better than expected, especially after analysts had lowered their forecasts, and the Magnificent Seven stocks were particularly instrumental. Additionally, renewed enthusiasm surrounding AI growth continued to build momentum. This was coupled with a string of stable inflation reports and robust economic data, painting a picture of stability.

Sector Stars
Technology was the clear leader, driven by the semiconductor space, due to strong AI-related demand. Individual companies like Nvidia (+46%), Microsoft (+33%), and Meta (+28%) delivered exceptionally strong performances, all fueled by AI. Financials also contributed to the positive sentiment, benefiting from a resilient economic backdrop and increased merger and acquisition activity. After a remarkable 25% surge in the S&P 500 from its April 8 low, investors are now wondering if there will be any fireworks left for the second half of the year.

Early Challenges, But the Show Went On
The market successfully navigated several significant challenges during the quarter. It’s important to remember that early on, the “Liberation Day” tariff announcement created considerable anxiety, pushing the effective tariff rate to its highest level since 1937. While trade policy off-ramps did emerge, concerns persist about ongoing negotiations and looming tariffs that haven’t yet been fully absorbed by the economy. In fact, some reports indicate that inventories have already started to be repriced higher by an average of 8-15%.

This comes at a time when consumers are showing some early signs of strain. Personal incomes dropped 4% month over month in May, the first decline in over four years. At the same time, retail sales declined 1% in May for the second consecutive month. Geopolitical tensions, particularly escalating conflict in the Middle East late in the quarter, also introduced an element of uncertainty. However, surprisingly, WTI crude oil fell 9% in Q2 despite these heightened tensions. Lower energy prices will certainly provide some relief, especially for consumers who are feeling stretched.

Finally, persistent policy uncertainty, including challenges to the Federal Reserve’s credibility and scrutiny of the national deficit, likely contributed to the 11% year-to-date decline in the trade-weighted value of the U.S. dollar. A weaker dollar makes imported goods more expensive, which could potentially worsen inflation concerns. Perhaps surprisingly, the 10-year U.S. Treasury yield ended the quarter at 4.2%, roughly flat for the quarter. The direction of 10-year U.S. Treasury yields will remain a pivotal factor for both the economy and the stock market in the months ahead.

An Encore, Please?
As the Q2 fireworks fade, we now turn our attention to the potential market reaction to the anticipated passage of the “One Big Beautiful Bill Act.” The Senate narrowly passed this legislation, with some last-minute deal-making helping to secure Senator Murkowski’s vote. While the market has shown a remarkable ability to adapt, the sheer scale of this legislation—potentially adding trillions to the national debt and incorporating significant tax changes and spending cuts—adds a new layer of complexity. Investors will be closely scrutinizing its final form and how it impacts long-term interest rates, inflation expectations, and corporate profitability.

While some provisions, like tax relief for certain workers, could boost consumer spending, the overall potential for a larger deficit may lead to increased volatility in bond markets and further debate about the sustainability of U.S. fiscal policy. Of course, proponents will argue that the growth aspects of the bill will more than offset the spending components, but only time will tell. In the meantime, the market’s reception of this bill will undoubtedly set the tone for the coming months, adding another layer of anticipation to the ongoing economic narrative.

Enjoy the July Fourth holiday!

Actor Tom Cruise turns 63 today, Broadway singer and actress Audra McDonald turns 55 and Actress Connie Nielsen is 60.

Christopher Gildea 610-260-2235

 

Tower Bridge Advisors manages over $1.3 Billion for individuals, families and select institutions with $1 Million or more of investable assets. We build portfolios of individual securities customized for each client's specific goals and objectives. Contact Nick Filippo (610-260-2222, nfilippo@towerbridgeadvisors.com) to learn more or to set up a complimentary portfolio review.

# – This security is owned by the author of this report or accounts under his management at Tower Bridge Advisors.

Additional information on companies in this report is available on request. This report is not a complete analysis of every material fact representing company, industry or security mentioned herein. This firm or its officers, stockholders, employees and clients, in the normal course of business, may have or acquire a position including options, if any, in the securities mentioned. This communication shall not be deemed to constitute an offer, or solicitation on our part with respect to the sale or purchase of any securities. The information above has been obtained from sources believed reliable, but is not necessarily complete and is not guaranteed. This report is prepared for general information only. It does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed in this report and should understand that statements regarding future prospects may not be realized. Opinions are subject to change without notice.

Filed Under: Market Commentary

Previous Post: « June 30, 2025 – Trump’s big beautiful bill is headed for the finish line. It isn’t done yet and likely will see further changes before it reaches his desk. As the administration buys the votes necessary for its approval, expect the impact on future deficits to rise. With that said, the bill will help to accelerate near-term growth. Second quarter earnings reports are just a couple of weeks away and they should be good. However, unlike Q1 when skepticism abounded, this time optimism is high. July is usually a good month for stocks but the sharp April-June rally may mute the pace of further gains.
Next Post: July 7, 2025 – Treasury Secretary Bessent talks of his 3-3-3 goals, 3% growth, 3% inflation and a reduction of the deficit-to-GDP ratio from over 6 to just 3. Those are mighty goals. The passage of the reconciliation bill may make short-term movement in the right direction but the ongoing buildup of debt may make reaching those long-term goals difficult. »

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  • July 21, 2025 – Last week was a quiet week for news. The real heart of earnings season starts to kick in this week. Meanwhile the new crypto legislation signed into law last week is likely to change our lives a lot more than what we will learn from a few earnings reports.
  • July 17, 2025 – Stocks rebounded after President Trump clarified his stance on Federal Reserve Chair Jerome Powell. While consumer and producer price indexes suggest some inflation moderation, particularly in services, certain tariff-exposed goods continue to see price increases. Despite these pressures, the U.S. economy shows underlying strength, exemplified by strong bank earnings and robust consumer spending, though the long-term impact of escalating tariffs remains a key uncertainty.
  • July 14, 2025 – Tariffs and earnings will be in the bullseye of investor focus for the next three weeks. Earnings should be good with the weak dollar giving a boost to reported foreign results. As for tariffs, the announcements are likely to be scarier than the coming reality. But even with more muted final outcomes, the likely overall tariff picture will almost certainly be the most severe since the early 1930s. Tariffs will affect different companies in different ways, a factor likely to lead to an increasing dispersion in stock performance in the months ahead.
  • July 10, 2025 – Professional dodgeball exists in the form of the National Dodgeball League. The NDL was founded in 2004 and is the only professional dodgeball league in the US, sporting 24 professional teams. Investors, corporate management teams and our trading partners may feel like they are playing dodgeball this year due to shifting tariff policies. Market volatility has indeed been above average in the first half of 2025. So far, we have dodged a major economic slowdown, job losses or significant inflationary pressures from tariffs, although the second half of 2025 could witness a bounce in these metrics.
  • July 7, 2025 – Treasury Secretary Bessent talks of his 3-3-3 goals, 3% growth, 3% inflation and a reduction of the deficit-to-GDP ratio from over 6 to just 3. Those are mighty goals. The passage of the reconciliation bill may make short-term movement in the right direction but the ongoing buildup of debt may make reaching those long-term goals difficult.
  • July 3, 2025 – The second quarter of 2025 delivered a stellar performance for U.S. equities, with impressive gains across major indices driven by strong corporate earnings, AI enthusiasm, and eased trade tensions. Despite this rally, the market successfully navigated challenges including early tariff anxieties, signs of consumer stress, and geopolitical uncertainties. Looking ahead, investors are keenly watching the “One Big Beautiful Bill Act” and its potential impact on interest rates, inflation, and corporate profitability.
  • June 30, 2025 – Trump’s big beautiful bill is headed for the finish line. It isn’t done yet and likely will see further changes before it reaches his desk. As the administration buys the votes necessary for its approval, expect the impact on future deficits to rise. With that said, the bill will help to accelerate near-term growth. Second quarter earnings reports are just a couple of weeks away and they should be good. However, unlike Q1 when skepticism abounded, this time optimism is high. July is usually a good month for stocks but the sharp April-June rally may mute the pace of further gains.
  • June 26, 2025 – Labubu dolls are hard to get these days. These dolls are prized by children in China, along with some celebrity admirers such as David Beckham and Rihanna. The grimacing, elvish-looking creatures come in “blind boxes” that keep buyers in suspense over which one they might get, but can take weeks to acquire. They sell for as little as $20, but a rare variety recently sold at auction for $150,000. In spite of all the hand-wringing about inflation and tariffs, consumers around the globe continue to spend. However, patterns of spending have definitely shifted.
  • June 23, 2025 – Saturday’s bombing of Iran’s nuclear sites was shocking news but financial markets are taking the news in stride at least until they can assess the Iranian response. Economically, little has changed so far. The one elevated risk would be an attempted blockage of the Strait of Hormuz. While possible, that would be a very dangerous escalation that would evoke a powerful response. Markets, at least for now, place low odds of that happening. Thus, the economic impact of the raid so far is marginal and markets remain calm.
  • June 16, 2025 – While many in Congress fret that the reconciliation bill now before the Senate raises deficits and ultimately leads to economic disaster if left unchecked in the future, the focus will be on now. That means lower taxes, faster growth and higher earnings in the short-run as long as the bond market doesn’t rebel. Only a true crisis is likely to elicit fiscal austerity. That won’t happen before the current bill, slightly modified, will pass. Wall Street will embrace it because it always embraces stimulative policy, at least until the side effects kick in. Markets are starting to replace complacency with euphoria. That can last many months. But as we learned from the SPAC debacle in 2021, it won’t last forever.

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