Midyear Review: Stocks' Climb Is Challenged During Volatile First Half

Markets took investors on an up-and-down ride during a volatile frst half of the year, with notable swings coming amid uncertainty about the impact of tariffs on the US and the global economy. In the US, while the S&P 500 hit new highs in February, it also posted sharp falls in April, before rebounding in May to end slightly higher as of June 20.1 In a reversal of trends in recent years, developed international equity markets outpaced the US, as did emerging markets. The US Federal Reserve held interest rates steady, citing risks of higher infation and a rise in unemployment. In the bond market, US Treasuries were higher, with the benchmark 10-year yield just below 4.3%.

Past performance is not a guarantee of future results.

The new US presidential administration took offce in January, later threatening or imposing tariffs on goods from a number of countries. The S&P 500 then fell by a combined 10.5% on April 3 and 4, marking the biggest two-day drop since the onset of the COVID-19 pandemic in March 2020. But, just a week later, on April 9, the index rose by 9.5% when the administration announced a 90-day pause on tariffs. Stocks subsequently continued their upward trend amid policy shifts and delays implementing tariffs. 

The Fed kept the federal-funds rate unchanged in the 4.25%–4.5% range in May and June, but offcials warned that uncertainty about the economic outlook remained elevated. On infation, the US core consumer price index, which excludes more-volatile food and energy items, showed prices rose 2.8% from a year earlier in May, the most recent data available—higher than the Fed’s target rate of 2%.

Investors also turned their attention to gold, whose price has risen 25.2% this year as of May 31, the most recent data available. Some may believe gold can be a useful tool for protecting wealth from rising prices or a safe haven to stabilize a portfolio when stocks are volatile. But gold hasn’t been effective at tracking infation and has been far from immune to downturns. In fact, since 1970, gold has had a positive annual return in just 60% of calendar years, while the S&P 500 Index has had a positive return in 80%. For investors, this pattern raises questions about the long-term benefts of an allocation to gold.

Approaching the year’s halfway point, the S&P 500 Index was up 2.1% and the tech-heavy Nasdaq was ahead 1.0%. Both indices at one point in April had fallen 20% from their previous highs. Global equities, as measured by the MSCI All Country World Index, rose 2 Dimensional Fund Advisors Please see the end of this document for important disclosures. 6.2% as of June 20, even amid confict in the Mideast that escalated in mid-June. Developed international stocks rose 15.5%, as measured by the MSCI World ex USA Index. The MSCI Emerging Markets Index gained 12.0.% The outperformance of international markets is further evidence of the benefts of global diversifcation. Holding equities from markets around the world—as opposed to those of a few countries or just one—positions investors to potentially capture higher returns wherever they may appear.

In the bond market, US Treasuries were 2.8% higher, sending the yield on the benchmark 10-year Treasury bond down to 4.28%. The broader bond market was also higher, with the Bloomberg US Aggregate Bond Index up 2.9% and the Bloomberg Global Aggregate Bond Index (hedged to USD)—a broad benchmark of sovereign and corporate debt—climbing 2.3% as of June 20. This is a reminder that bonds issued in different countries can offer a range of yields and expected returns, potentially benefting investors who diversify across bond markets globally.

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