June 2025 was marked by the strong resilience and recovery of financial markets across multiple asset classes, driven by easing geopolitical tensions, improving corporate fundamentals, and shifting monetary policy expectations.
In the United States, the S&P 500 has completed its recovery from the rough decline in April, achieving a new all-time high last month and standing at +6.2 % since the beginning of the year, with AI-related companies leading the way.
Political and fiscal uncertainty led to a weaker dollar
Unfortunately, for the European investor, the U.S. dollar experienced a weak first-half performance, falling over 11% against the euro. This sharp decline was driven by political and fiscal uncertainty - President Donald Trump's renewed trade policies, including tariffs and erratic policy shifts, created global investor unease.
Moreover, investors began hedging their exposure to U.S. assets rather than outright selling, contributing to a bearish sentiment on the currency. As so, and overall, traditionally seen as a safe-haven asset, the dollar lost ground due to structural concerns over trade, debt, and governance.
Markets still hope for rate cuts
On the bond markets, the 10-year U.S. Treasury yield fell to 4,3%, so the shorter durations declined, indicating expectations of rate cuts. Nonetheless, the Federal Reserve held rates steady at 4.25–4.5%, but the markets are expecting two cuts later in 2025.
Looking at the semester, the first half of 2025 has been particularly volatile, with market performance marred by different types of uncertainty. There was, of course, Trump's "Liberation Day" and the announcement of tariffs on all imports to the USA; then there was the fear that, by damaging supply chains, the same tariffs would fan the flames of inflation. Other threats included several conflicts involving nuclear powers.
A calmer U.S. and challenging Europe
The outlook for the second semester is quite challenging, but in the U.S., there are reasons to believe that, following a frantic few months, the Trump presidency will ease the rhythm at which it surprises investors.
For Europe, the challenges look far more daunting. Remaining competitive while having to comply with far more stringent regulations, higher tax burdens, and high energy and labour costs is not easy. Regarding other regions, we see potential in China and specific emerging markets, such as India and Indonesia.
See below our suggested portfolio allocation strategy:
