The second quarter reminded investors that volatility, while uncomfortable, often sets the stage for opportunity. That belief has long been a guiding principle of our investment approach, and it served our clients well again in the quarter. With markets under pressure, we leaned in and deployed cash that had been strategically raised in late 2024. In early to mid-April, as domestic equity valuations became more attractive, we added to U.S. core and growth equity positions. These moves helped position portfolios to capture the subsequent rebound.
And what a rebound it was. After falling 22% from its highs and nearly 20% year-to-date, the S&P 500 staged an impressive comeback, finishing the quarter up 11% and bringing YTD gains back into the mid-single digits. This kind of swing would have been hard to imagine in early April. The speed and magnitude of the move echoed what we saw during the COVID-19 period. Most notably, growth stocks outperformed value by a record 15% margin, a historic quarterly divergence that shaped overall market returns.
Despite the recovery in equity markets, uncertainty remains. The expiration of the 90-day tariff pause has renewed concerns around inflation, earnings, and broader economic momentum. In many ways, we have been in the “climbing the wall of worry” phase, a classic market behavior where stocks grind higher despite constant headline noise. It is a reminder that markets often move ahead of the news, driven by underlying fundamentals and an often-underestimated resilience.
Given the rally off the lows and ongoing risks, we view risk and reward in equities as currently balanced and are keeping client allocations close to long-term targets. Economic fundamentals remain solid. Banks are well capitalized, and consumer balance sheets are the healthiest they’ve been in over 50 years. This backdrop suggests that if we do experience an economic slowdown or recession, it is more likely to be mild rather than severe. We stand ready to act opportunistically should markets present attractive levels to add to equities, raise cash, or increase fixed income exposure.
On the fixed income side, we reduced interest rate sensitivity in June. While we expect long-term yields to remain range-bound, we see a slight upward bias due to persistently high deficits, potential inflation from tariffs, and uncertainty surrounding the anticipated transition to a new Federal Reserve Chair in May 2026. These factors, combined with a surprisingly resilient economy, could lead the Fed to keep rates steady longer than many expect. For now, we are keeping duration short but will look to lock in higher yields for clients if rates move higher.
We appreciate your continued trust. We remain disciplined, opportunistic, and committed to adjusting portfolios as conditions evolve.