There was certainly no shortage of stock market volatility in the first half of 2025. Investors entered the year coming off back-to-back years with over 20% gains in the S&P 500.

There was a mix of optimism and anxiety — positive momentum and bullish signals from a deregulating, tax cutting Trump administration combined with nerves around an overheated market. As headlines and market gyrations seem to move at breakneck speed, here is a quick refresher on the past six months, and a look ahead.

In January the S&P 500 returned 2.8% with easing inflation data suggesting eventual Fed interest rate cuts (more on this later). In February the index dropped -1.3%, weighed down by the Magnificent 7 collectively falling -5.7%.

The S&P 500 then fell further in March down -5.6% amid returning inflation concerns and President Trump’s talk of tariffs with Canada and Mexico. The S&P 500 continued its slide down -0.68% in April following Trump’s “Liberation Day” and announcement of a global tariff. April 3 was the worst performing day since 2020 as the index plummeted -4.84%. This led to a -18.8% correction on the year.

However, on April 9 the stock market had one of its best days ever with a 9.5% rise in the S&P 500 as Trump walked back his global tariffs. The S&P 500 rallied 6.29% in May, bringing it back to positive on the year. June was another strong month as the index returned 5.1% and registered a new all-time high.

Did you follow all that? It might be better if you didn’t.

WHIPSAW

If you invested in the S&P 500 on January 1^st of this year, closed your eyes, then opened them on July 1^st, you were positive 5.73%. Most investors would consider this a reasonable, positive return.

As for investors who watched the news every day and followed their portfolio hour by hour, there were two valuable lessons to be learned. First, I always tell clients, “Know thyself.”

Every investment account opening at my firm requires the completion of a risk tolerance questionnaire. However, managing risk and managing emotion is easier said than done. Checking a risk/reward box that you would be comfortable with a 30% loss if it might mean a 30% gain is as simple as a click of a button.

Watching your hard-earned savings whipsaw back and forth during doomsday commentary on the nightly news is another story. I would posit that one of the best takeaways through the first half of this year is that young investors and newer investors experienced a spectrum of economic news and highs and lows.

The second valuable lesson was another real-time stamp of approval on the investment tenets of staying the course and dollar cost averaging. An S&P 500 investor who panicked in April and moved to cash could have realized a double-digit percentage loss on the year thus far, as opposed to a nice 5.73% growth by those who stayed invested.

Simply missing the historic 9.5% single-day rally on April 9 could be enough to leave an S&P 500 investor still in the red on the year. Dollar cost averaging, an investment strategy where a fixed amount of money is invested at regular intervals, fulfilled its job by buying more shares of the market when prices were low and fewer shares when prices were high. Sticking to such a systematic investment plan eliminated the dangerous temptation of market timing.

How did various sectors of the market perform during these volatile first six months of 2025?

The tech heavy Nasdaq composite index nearly mirrored the S&P500 with a 5.65% return. Small-cap stocks (Russell 2000) lagged with a -1.8% return. Emerging markets (MSCI EM Index) had a strong first half with a 15.3% return. Bonds (Bloomberg U.S. Aggregate Bond Index) posted a 4.0% return. Meanwhile, gold soared 23.9% and utilities 7.07% (Utilities Select Sector SPDR).

As we enter the second half of 2025, there remains cause for both economic optimism and geopolitical worry. There is the potential for unrest in the Middle East to expand further, and the Russia-Ukraine war continues after two and a half years of failed diplomacy.

On the positive side, the U.S. and China have agreed to a trade deal in principle allowing the U.S. access to rare earth minerals while easing trade restrictions on China. Inflation increased modestly by 2.4% (annualized) in May, and unemployment remains relatively low at 4.1%[1].

Trump’s “Big Beautiful Bill” has been passed which will extend and modify the 2017 Tax Cuts and Jobs Act.

FED STAYS SIDELINED

Throughout this year, arguably the greatest influencer, the Federal Reserve, has been a bystander. The Fed stated that economic activity has continued to expand at a solid pace. Fed Reserve Chairman Jerome Powell said a higher inflation outlook has led to the Fed’s inactivity as the central bank waits for more clarity on the economic effect of the President’s tariffs before lowering interest rates.

Ideally, storing up rate cuts should buffet any potential inflation and negate the need for further rate hikes (ideally), while leaving the option to cut rates and boost the markets even further available if global trade stabilizes.[2]

This article is intended for the general public to potentially assist in planning for the future. This should not be considered investment advice. Readers should consult their own financial professionals, legal, and tax advisors to discuss their specific situation.

________________

Bryan M. Kuderna is a Certified Financial Planner™ and the founder of Kuderna Financial Team, a New Jersey-based financial services firm.  He is the host of The Kuderna Podcast and author of ,"WHAT SHOULD I DO WITH MY MONEY?: Economic Insights to Build Wealth Amid Chaos".