Lessons Learned From the Market's Stunning Second-Quarter Comeback
Economic skepticism helped to fuel a very powerful move, but is it over?
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The second quarter of 2025 is now in the books, and to write that it was a good quarter would be an understatement. The Nasdaq Composite gained a whopping 17.7% which is the best performance in 25 years (excluding the Covid period). The index totally recovered the losses in the first quarter and is now up 5.5% for 2025.
The S&P 500 gained 10.6% during the quarter and is up 5.2% year to date. The Russell 2000 small-cap IWM jumped 8.3%, but it is still down 8.8% year to date.
What was most notable about the market performance during the second quarter was that it was fueled in great part by a very high level of skepticism about trade, tariffs, and President's Trump policies in general. The bears were absolutely convinced that Trump would crush the economy with his trade policies. These bears have been calling for a downturn in the economy for a very long time, and their argument was that the president's policies would accelerate that possibility with higher inflation and slower growth.
The bears have been wrong, and there has been little economic data to support their arguments. Many remain convinced that tough economic times are still on the horizon, but they have been forced to keep repositioning to avoid being crushed by the strong market uptrend. Indeed, the high level of bearishness has provided significant fuel for the indexes to run higher.
The trillion-dollar question now is whether the bearish arguments will finally start to weigh on the market. With the S&P 500 and Nasdaq 100 QQQ sitting at all-time highs, the bears are even more anxious to predict a market top.
While the market could certainly use some consolidation and pullbacks to digest the second-quarter gains, its fundamental health still appears robust. There are some stretched valuations, but tariffs are not looking to be the economic disaster that many economists have predicted. Meanwhile, strength in AI and technology is building and has become a safe haven for those who fear tariffs.
The second-quarter earnings season starts in a little over a week, and will determine where the market is heading next. With many stocks running up so much in the second quarter, there will be strong "sell-the-news" potential, but that may be the dip that bulls on the sidelines have been waiting for.
My best advice is to stay focused on the price action rather than the economic and valuation arguments. The bears have shown that they can’t time this market with any level of precision. When the price action shifts, then their arguments might start to matter.
We have a mixed start on Tuesday morning.
At the time of publication, Rev Shark had no positions in any securities mentioned.
