The State of the Markets (June 2025)
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This is a special edition of the Week in Charts where I break down the state of the markets. Here’s a snapshot of what’s happening across the major asset classes and the economy as we head into the second half of 2025.
1) Stocks
Equity markets have experienced a dramatic recovery following the biggest correction since 2022.
In just nine weeks, stocks staged one of their strongest rallies on record, while volatility, as measured by the VIX, saw its sharpest collapse ever.
The large cap major indices, including the Nasdaq 100 and the S&P 500, have reclaimed their 200-day moving averages, but Small Caps (Russell 2000) continue to lag and remain below their long-term moving average.
Corporate earnings have continued to climb, with S&P 500 profits hitting new highs in Q1, up 9.6% year-over-year. Earnings are expected to grow at a similar pace throughout the remainder of the year.
With the sharp recovery in stocks, US equity valuations are once again at elevated levels, raising concerns about future returns.
Entering the year, US stocks had outperformed International stocks for over 16 years, by far the longest run of outperformance in history.
But so far this year, we’re seeing the exact opposite, with International stocks up 16% vs. a 2% gain for the S&P 500.
Within International, Europe has been the standout performer with a 24% gain for the Eurozone ETF ($EZU).
Unlike the past few years, the Magnificent Seven names are not moving in tandem but are showing divergent performance thus far in 2025. Meta, Microsoft, and Nvidia are outperforming the S&P 500 while Amazon, Google, Apple, and Tesla are all down on the year.
2) Bonds & the Fed
On the fixed income side, bonds are still working through their longest drawdown on record at nearly 5 years.
The good news: yields have risen substantially from their 2020 all-time lows, implying better forward returns for bond investors.
High yield spreads have tightened dramatically off of their April wides (461 bps down to 316 bps), with almost no fear of recession or higher defaults priced in.
Here’s a look at bond returns sorted by this year’s performance. Emerging Markets are leading the way while Long-Term Zero-Coupon Treasuries ($ZROZ) are the laggards once again as long-term yields have risen. A stunning fact: the longest duration bond ETF ($ZROZ) is down over 60% from its peak in 2020.
As for the Fed, they continue to hold interest rates at 4.25-4.25% but are still forecasting 2 rate cuts in 2025. The market is pricing in the first of those cuts to occur in September (25 bps move down to 4.00-4.25%) and the second in December (25 move down to 3.75-4.00%).
What could derail those cuts? A rise in the Fed’s preferred measure of inflation (core PCE) which has come down to 2.5% (lowest since March 2021) but remains above the Fed’s 2% target.
What could accelerate those cuts?
Deterioration in the economic outlook, particularly weakness in the labor market. While the Unemployment Rate remains low at 4.2%, leading indicators of job growth are pointing to a cooling labor market, with Continued Jobless Claims now at their highest level since November 2021.
3) Real Estate & Housing
While the S&P 500 has hit 60 all-time highs since the start of 2024, Real Estate Investment Trusts ($VNQ ETF) remain over 8% below their peak from early 2022.
This is, in part, a result of the decline in US commercial real estate prices which are still down 17% from their peak 2022 levels.
Meanwhile, US residential home prices have continued to march upward.
Home prices in the US are up over 94% in the last 10 years, more than double the increase in wages. The widening gap between prices and incomes has created an affordability crisis.
Over the past five years, median monthly payments have nearly doubled for potential buyers which has led to a collapse in demand.
But supply has been steadily rising and home sellers are now estimated to outnumber buyers by nearly 500k, the largest gap on record with data going back to 2013.
If this relationship holds, price appreciation should continue to moderate. On that point, US existing home prices rose just 1.3% over the past year, the slowest growth rate in two years.
Meanwhile, the rental market in the US continues to become more affordable, as high vacancy rates (7%) have put a lid on prices. Rents have now declined on a year-over-year basis for 24 consecutive months with median rents still below peak 2022 levels.
4) Commodities
Gold has been the biggest story in Commodity markets this year, with a gain of nearly 29%. This is on pace for its best year since 1979.
It took 45 years to get there, but inflation-adjusted Gold prices are back at an all-time high, surpassing the prior peak from 1980.
And Silver is at its highest level since 2011.
Here’s a look at how the major commodities have performed over the last year…
5) Currencies
The US Dollar Index is having its worst start to a year ever, which has boosted the international equity returns for US investors.
Here’s a look at global growth and inflation rates…
₿ 6) Crypto
After a vertical advance, Bitcoin recovered fully from its 32% correction to hit a new all-time high in May, rising above $111,000 for the first time.
Bitcoin has massively outperformed most other crypto assets in recent years and now accounts for 65% of the total crypto market value, its highest share since January 2021. That’s up from a low of 38% in late 2022.
7) Intermarket/Major Asset Summary
The 1-year correlation between US stocks and bonds, which is coming off a near record high, is falling fast. The reason: fears of recession have replaced fears of inflation as the primary market concern. And during a recession, yields tend to fall and earnings tend to decline, leading to bond market strength and equity market weakness.
Here’s a look at the returns for major asset classes since 2011. Gold is leading everything so far this year while U.S. small caps have been the worst performers.
8) The Economy
US Real GDP fell 0.2% annualized in Q1, sparking fears of recession.
But Q2 GDP is tracking at +3.4% according to the latest estimate from the Atlanta Fed.
Net exports are expected to be a positive contributor in Q2, reversing much of the negative impact from the frontrunning of imports in Q1. This is due to the narrowing trade deficit off of record highs in Q1.
Most important for the real economy: wage growth of 3.9% in the past year was 1.4% higher than the increase in CPI inflation. That was the 25th straight month in which wages outpaced inflation over the prior year, a great trend for the American worker that hopefully continues.
I’m excited to be speaking at Creative Planning’s CONNECT25 event in Chicago on June 26.
I’ll be sharing insights on “7 Timeless Rules for Investors” alongside Peter Mallouk, followed by thought-provoking speakers on AI and the science of happiness.
If you’re in the Chicago area, we’d love for you to join us.
Hope to see you there!
Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. Read our full disclosures here.
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