Market Wrap – June 2025

Jul 01, 2025

This is a brief review with a focus on key trends. More detailed information, including macroeconomic statistics and key events, is presented in the weekly reviews.

Executive Summary

In June, the U.S. stock market extended its recovery from April’s lows, buoyed by optimism surrounding potential trade agreements with China and the European Union, and reinforced by growing expectations for monetary easing from the Federal Reserve. The Nasdaq Composite led major indices with a robust 6.6% gain, while the DJIA and the S&P 500 rose by a substantial 4.3% and 5.0%, respectively.

However, BofA’s Michael Hartnett warns that expectations of U.S. interest rate cuts and a shift in U.S. policy focus from tariffs toward potential tax cuts have significantly boosted equity inflows. Year-to-date, U.S. equity inflows have already reached $164 billion, placing 2025 on pace for the third-largest annual inflow ever recorded. Hartnett emphasizes that a speculative bubble may form in the second half of the year, suggesting investors adopt a strategic "barbell" portfolio approach—combining long U.S. growth equities with global value equities—to mitigate risk.

Nevertheless, the overall market outlook for the latter half of 2025 appears favorable, characterized by a "Goldilocks" scenario—combining easing geopolitical tensions, prospective trade deals, possible extensions of the 2017 tax cuts, and anticipated Fed rate cuts. Clark Bellin of Bellwether Wealth believes these factors could sustain market momentum, though he advises investors to remain prepared for continued volatility.

Globally, country ETFs continued their rally, with the global ex-U.S. index rising 3.9%. However, this performance was significantly influenced by the weakening dollar, currently at its lowest level since early 2022, amid concerns about rising U.S. government deficits and uncertainty around major trade agreements.

Cryptocurrencies showed mixed dynamics, further highlighting notable trends seen this year. While Bitcoin rose another 3% in June, other major tokens were flat or declined. Since the beginning of 2025, Bitcoin has solidified its dominance, now accounting for 65% of total crypto market value—the highest since early 2021 and up from 58% at the end of December 2024. In relative terms, Bitcoin’s market cap rose 15.2% in the first half of the year, while the market cap of other cryptocurrencies declined by 14.8%.

Market expectations shifted toward a more accommodative Federal Reserve stance, as inflationary effects of tariffs appear milder than previously anticipated. According to CME data, the implied Fed Funds rate curve over the next 18 months (through December 2026) shifted downward by an average of 16 basis points, with the terminal rate now projected to be 23 basis points lower. Meanwhile, weakened consumer spending supports further rate cuts, with markets now expecting a total of three cuts by year-end, compared to two a month ago.

Consequently, the U.S. Treasury yield curve moved lower. The 10-year yield fell 21 basis points to 4.19%, while the 30-year yield decreased by 19 basis points to 4.74%.

US Stock Market

In June, the U.S. stock market extended its recovery from April’s lows, buoyed by optimism surrounding potential trade agreements with China and the European Union, and reinforced by growing expectations that the Federal Reserve would ease monetary policy. The Nasdaq Composite led major indices with a robust 6.6% gain, while the Dow Jones Industrial Average and the S&P 500 rose by a substantial 4.3% and 5.0%, respectively. Improved investor sentiment was further bolstered by diminishing geopolitical risks following a ceasefire between Israel and Iran.

Institutional investors, notably hedge funds, have actively supported this bullish momentum. For eight consecutive weeks, hedge funds have been net buyers of U.S. equities, primarily increasing long positions while simultaneously reducing short exposure. Consequently, hedge fund net leverage—calculated as long positions minus short positions—increased significantly, highlighting a more bullish market stance.

However, alongside rising market optimism, concerns regarding speculative excesses and potential bubble risks have emerged. BofA’s Michael Hartnett warns that expectations of U.S. interest rate cuts and a policy shift from tariffs toward potential tax cuts have significantly boosted investment flows into equities. Year-to-date, U.S. equity inflows have already reached $164 billion, placing 2025 on pace for the third-largest annual inflow ever recorded, according to EPFR Global data. Hartnett emphasizes the potential for a speculative bubble to form in the second half of the year, suggesting investors balance portfolios through a strategic barbell approach—long U.S. growth equities and long global value equities—to mitigate risk.

Nevertheless, the overall market outlook for the latter half of 2025 appears favorable, characterized by a "Goldilocks" scenario—combining easing geopolitical tensions, prospective trade deals, possible extensions of the 2017 tax cuts, and anticipated Fed rate cuts. According to Clark Bellin of Bellwether Wealth, these factors could sustain current market momentum, though he advises continued preparedness for volatility.

Year-to-date, more segments turned positive. However, the discrepancy between opposite Large Growth and Small Value only widened to 16.3%, up from 13.6% a month ago.

Amid the broad rally, only defensive sectors posted losses.

The Magnificent 7 appear to be returning to their previous two-year pattern, where this cohort drives the broader market. According to our calculations, second month in a row this cohort accounts for half of the monthly rise of the S&P 500. In relative terms, their market cap has increased by 2.4% YTD, while the remaining 493 stocks in the index are up 6.9%. In May, these figures stood at -4.7% and +3.5%, respectively.

Global Stock Markets

Globally, country ETFs continued their rally, with the global ex-U.S. index rising 3.9%. However, this performance was significantly influenced by the weakening dollar, currently valued at its lowest level since early 2022 amid worries over the rising U.S. government deficit and uncertainty surrounding trade deals with major countries.

European equities have outperformed their U.S. counterparts by the largest margin on record when measured in dollar terms during the first half of the year, signaling a major shift in global asset allocation after more than a decade of U.S. dominance. This outperformance coincided with the euro appreciating by 13% against the dollar over the past six months, and German bunds delivering stronger returns than U.S. Treasuries, as concerns over U.S. tariffs, tax policy, and fiscal expansion have led investors to scale back their exposure to U.S. assets. The region has seen a surge in demand for stocks and bonds, supported by aggressive European Central Bank rate cuts and a new wave of government spending, particularly in Germany, where the removal of the debt brake is funding significant investments in defense and infrastructure.

Relative valuations are playing a central role in this shift, as European equities currently trade at a 35% discount to U.S. stocks, offering higher dividends and comparable buyback yields. Despite political uncertainty and longstanding regulatory hurdles in the region, the prospect of fiscal stimulus and attractive pricing has generated renewed confidence in Europe’s longer-term growth outlook. The euro’s rally is expected to continue, with forecasts for the currency to reach $1.20 to $1.40 in the coming year, depending on the trajectory of U.S. interest rates and further fiscal expansion in the euro area.

While the U.S. stock market continues to benefit from the powerful AI theme and its heavyweight technology sector—and may see renewed interest if the Federal Reserve cuts rates later in the year—many investors and asset managers now view international equities, particularly in Europe, as the more compelling long-term opportunity. Survey data from Bank of America shows a net 34% of global fund managers are overweight euro-area equities, while a net 36% remain underweight their U.S. peers, reflecting a marked change in sentiment. As diversification gains renewed importance amid U.S. policy and political risks, the European market stands to benefit further from both domestic and international capital rotation, especially as fiscal stimulus and lower rates underpin earnings and economic growth across the continent.

Cryptocurrency Market

Meanwhile, cryptocurrencies showed mixed dynamics, further highlighting notable trends seen this year. While Bitcoin rose another 3% in June, other major tokens were flat or fell. Since the beginning of 2025, Bitcoin has solidified its dominance, now accounting for 65% of total crypto market value—the highest share since early 2021, and up from 58% at the end of December 2024. From a relative perspective, Bitcoin’s market cap rose 15.2% in the first half of the year, while the market cap of the rest of the crypto market declined by 14.8%.

This shift comes amid a sustained rally, particularly fueled by inflows into exchange-traded funds (another $4.6 billion in June) and significant institutional participation. In sharp contrast, most altcoins—digital assets other than Bitcoin and stablecoins—are experiencing severe underperformance. Ether, despite benefiting from spot ETF inflows and playing a crucial role in decentralized finance, remains roughly 50% below its all-time high. The altcoin malaise reflects both a lack of sustained speculative momentum and a shift toward a more regulated, utility-focused, and institutionally driven market structure. Stablecoins, which have gained $47 billion in market value over the past year, are increasingly viewed as the only viable alternative means of payment alongside Bitcoin, attracting interest even from major corporates such as Amazon.

This concentration of capital in Bitcoin and select stablecoins is creating existential challenges for many altcoin projects, prompting some to explore mergers or governance integrations to survive. Nevertheless, a subset of tokens linked to thriving decentralized finance protocols, such as Maker and Hyperliquid, have managed to outperform, buoyed by real revenues and strong utility. Prospects for a broader altcoin revival hinge on regulatory catalysts, notably the potential passage of the Digital Asset Market Clarity (CLARITY) Act, which aims to delineate regulatory oversight between the SEC and CFTC, and possible approval of spot ETFs for other leading tokens like Solana.

Debt and Fixed Income Markets

Market expectations shifted toward a more accommodative Federal Reserve stance. According to CME data, the implied Fed Funds rate curve over the next 18 months (through December 2026) shifted downward by an average of 16 basis points, with the terminal rate now projected to be 23 basis points lower. The market consensus appears to be leaning toward a more dovish monetary policy as the inflationary effects of tariffs “look a bit smaller” than previously expected. Meanwhile, weakened consumer spending supports further rate cuts, with markets now expecting a total of three cuts by year-end, compared to two a month ago.