Market resilience in the face of geopolitical drama

In the US, the S&P 500 and Nasdaq Composite both reached record highs, marking one of the fastest recoveries from a 20% drawdown on record. Over the course of the second quarter, we saw the US market outperform the rest of the world as American large-cap tech companies rose on renewed optimism on artificial intelligence.

The resilience in the US market has been striking, especially given the concerns around trade tensions earlier in the spring. It seems investors are finding reasons for optimism, particularly as discussions surrounding tariffs appear to be moving towards more agreeable outcomes.

There were encouraging signs of progress on negotiations between the US and China, which helped to alleviate some anxieties that had previously weighed on markets. In late June, the European Commission president said the EU is ready to offer a more US-favourable trade deal – one Trump might accept. Markets responded positively, with sentiment leaning toward lower-than-feared overall tariff rates.

Rate cut expectations and dollar lows

Markets are increasingly expecting Fed rate cuts later this year. If the US continues to avoid a recession, rate cuts will likely support equities in the second half of the year. However, the Fed’s latest meeting reaffirmed a cautious, data-dependent stance, with Powell noting that inflation has not yet reflected significant tariff effects, making it too early to declare victory. Meanwhile, strong job openings and a steady quits rate, continue to signal a resilient US labour market.

The dollar continued to touch new lows for the year as the outsized US economic growth relative to the rest of the world shrinks. We will soon be releasing research on dollar movements, please look out for it. You can receive the research, along with other useful articles and guides, by signing up to our newsletters.  

Geopolitics, trade, and investor confidence

Geopolitical developments played a significant role in June, particularly concerning the Middle East. News of a ceasefire between Israel and Iran on 24 June triggered a broad risk rally across global markets. This truce, brokered through diplomatic efforts, significantly eased geopolitical tensions that had previously kept markets on edge. Crude oil prices dropped sharply as traders unwound 'geopolitical risk' premiums, likely containing the impact of the conflict on the global economy.

Despite the overall market gains, some companies are still navigating a challenging economic landscape, with concerns around the tariff impact on margins and customer deferrals of investment decisions. This highlights the ongoing need for vigilance, as a broader slowdown in global growth has been projected by some institutions like the World Bank due to persistent policy uncertainty.

In Germany, the government approved the 2025 draft budget, paving the way for increased public spending. The proposed higher-than-expected deficit highlights priorities such as repairing aging infrastructure, supporting a slowing economy, and boosting military investment. While this marks a step in the right direction, we remain cautious. The trajectory of tariffs and Germany’s structural challenges – like demographic shifts and low productivity – will be key to watch.

Looking ahead

As we move into July, the focus will likely remain on trade developments, inflation trends, and central bank commentary. The remarkable resilience of global stock markets in June, particularly in response to positive geopolitical news, provides a hopeful backdrop.