There’s still plenty to fret about. But considering solely the performance record of financial markets at midyear, I could have relaxed months ago about my investment returns, and so could nearly everybody else.
The remarkable thing is that despite continual shocks, pervasive uncertainty and periodically sharp price declines, often induced by the disruptive policies of the Trump administration, the U.S. stock and bond markets have turned in perfectly respectable performances so far this year.
It hasn’t been a case of America finishing first, though. Markets elsewhere in the world were outstanding, and the falling U.S. dollar amplified their exceptional performances for U.S. investors with global holdings.
Still, the S&P 500 stock index, which tracks many of the biggest stocks in the U.S. market, returned 10.9 percent, including dividends, for the three months through June and 15.2 percent for 12 months. Those are excellent returns by any measure — higher, for example, than the 10.5 percent annualized return of the S&P 500 since 1926, according to Howard Silverblatt, senior index analyst for S&P Dow Jones Indices.
For 2025 through June, the index was up only 6.2 percent, with dividends. That’s a solid return — and it’s absolutely outstanding when you consider how frightening the stock market looked just a few months ago. Recall that from Feb. 19 through April 8, the S&P 500 fell 18.9 percent, a sharp drop caused, in large measure, by President Trump’s imposition of the steepest tariffs in 100 years. Tariffs haven’t gone away, but some are being negotiated down, with sufficient movement to calm the markets.
As much of a relief as the market rebound has been, let’s keep some perspective: The S&P 500’s 6.2 percent total return for the first six months of the year in Mr. Trump’s second term ranks as merely OK. It trailed the 15.3 percent total return of the first six months of 2021, when President Joseph R. Biden Jr. was in power, and the 9.3 percent return in 2017, during the first Trump administration.
Nonetheless, for ordinary U.S. investors, who must live with domestic strife and geopolitical tremors, this year’s returns are nothing to complain about. Just hanging in and ignoring the news has paid off.
Low-cost, diversified stock and bond portfolios containing index funds are the core of investing for many people. Bespoke Investment Group calculated that a basic portfolio — with 60 percent U.S. stock and 40 percent U.S. bonds — returned 5.1 percent for the first half of the year. That was the fifth consecutive half-year performance of at least 5 percent for the 60/40 portfolio, the longest such streak since at least 1975.
This timing is worth thinking about because it began in 2023, in the midst a great deal of shortsighted — and misguided — chatter about the supposed “death” of the 60/40 portfolio. As I wrote back then, such declarations were grotesquely premature, though understandable. They were set off by bond price declines, which were caused by the soaring inflation and rising interest rates of 2022. Bonds and stocks simultaneously lost value.
The steady, excellent performance of 60/40 portfolios since then can’t continue forever. But the concept of diversified stock and bond investing remains vital and, I think, is likely to endure for decades to come. It’s especially important now, with frequent, profound government shifts in policy that make it even more difficult than usual to forecast what parts of the economy and the markets are most likely to thrive.
The Returns for Funds
The Trump experience has been stressful for millions of people this year, no doubt. There are problems galore: tariffs, the growing U.S. budget deficit, deportations of immigrants, the plight of U.S. universities, turmoil in the Middle East, Russia’s war in Ukraine, global warming. The financial markets have, periodically and briefly, buckled under the stress.
But for the vast majority of investors in the United States, who use mutual funds and exchange-traded funds to hold stocks, bonds and other assets, the three months that ended in June were a welcome reprieve.
Final numbers have arrived from Morningstar, and they indicate that U.S. stock and bond fund investors fared quite well, especially if their holdings were global and diversified. Here are some of the returns for the average stock and bond mutual funds for those three months:
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Domestic stock funds: Up 9.2 percent.
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Taxable bond funds: Up 2.1 percent.
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Municipal bond funds: Down 0.4 percent.
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International stock funds: Up 12.1 percent.
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Diversified asset allocation funds with 30 to 50 percent stock and most of the remainder in bonds: Up 4.4 percent.
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Diversified stock-bond funds with 70 to 85 percent stock: Up 7.7 percent.
Diversification reduced portfolio risk, though other investments produced better returns.
For example, the best-performing stock in the S&P 500 for the year through June was Palantir, the data analysis and technology firm that has been helping the Trump administration scoop up personal information on millions of Americans. It gained 80.3 percent.
People with long memories may be startled to learn that IBM, the venerable computer company, gained 34.1 percent. These days, IBM is emphasizing artificial intelligence and cloud and quantum computing. IBM’s sizzling stock made it the leader of the Dow Jones industrial average, a distinction that IBM — once more dominant in the stock market than relative upstarts like Apple, Nvidia and Microsoft — hasn’t had for decades.
Among stock funds in the second quarter, those focused on Latin America returned an average 16.8 percent, while precious-metal funds, fueled by rising gold prices, rose 15.6 percent.
The Morningstar tallies included actively managed funds as well as index funds. They showed that, as usual, fund managers for the most part were unable to beat the broad markets. The average domestic and international funds trailed their benchmark indexes, for example.
That said, funds that picked the right stocks or sectors this time did exceptionally well.
Funds that focused on technology, for instance, returned 24.3 percent on average. Whether such funds prosper in any given period is often a hit-or-miss proposition.
Consider the American Beacon Ark Transformational Innovation Fund, managed by Cathie Wood. She gained a degree of celebrity several years ago for her full-throated advocacy of high-growth tech stocks. Tesla was one of her favorite investments in 2021, and it remained so in the second quarter, according to her fund’s filing with the Securities and Exchange Commission.
The fund was a top performer in the second quarter, with a 47.5 percent return, according to Morningstar. Yet over the last five years, after losses and gains are tallied, it returned only 0.2 percent annualized, making it one of the worst of all stock funds, according to Morningstar.
By comparison, the low-cost Vanguard S&P 500 exchange-traded fund, which merely tracked the benchmark index, returned 16.6 percent, annualized, in that five-year period. So investors in the Vanguard index fund more than doubled their money, while those who held Ms. Wood’s fund treaded water.
These are radically different investing approaches. Make your own choice.
Looking Ahead
If I had known several months ago that the markets would be sitting on sizable gains now, my investment approach wouldn’t have changed a bit. I never abandoned the markets in the winter downturn, and I haven’t sought to capitalize on the recent surge. Most of my money is in stocks all the time, with the remainder in investment-grade bonds and money market funds. As I noted last week, I’m doing my best to hang on for decades, using low-cost index funds. That approach has worked beautifully in the past, as the veteran investor Charles D. Ellis pointed out.
But this long-term approach assumes that the future will resemble the past in important respects. Among them are these: The economy, and the government will function reasonably well, the rule of law will prevail and companies will be able to generate profits that will flow to shareholders and bondholders. Fully exploring these core issues goes well beyond the purview of this particular column. But I’d be remiss if I didn’t point out that the changes undertaken by the Trump administration could put the United States, and the world, on a different track.
Mr. Trump and his supporters maintain that he is making things better, taking measures to strengthen the United States and, as he says, “make America great again.” The markets have responded favorably lately, in the belief, I think, that whatever changes the president puts in place, U.S. companies will find ways to flourish, at least over the short term.
Few economists agree, however, with basic aspects of Mr. Trump’s approach — like raising tariffs and increasing the budget deficit when the economy has already been strong. In addition, the effective elimination of some government regulators, the stripping of federal funding from much scientific research and from major universities, and the harsh treatment of foreign students and scholars seem likely to impair the country’s ability to compete globally.
Much more is troubling and economically salient. The ever-increasing use of executive and enforcement power to detain and deport immigrants is, among other things, reducing the size and diversity of the nation’s talent pool. And the government is encouraging the expansion of cryptocurrency into retirement accounts and, soon, the housing market.
Another worry is the administration’s persistent criticism of the chair of the Federal Reserve, Jerome H. Powell, for not lowering interest rates. Mr. Powell says the central bank is delaying out of prudence. Mr. Trump’s tariffs could have the powerful yet clashing effects of increasing inflation and decreasing economic growth. What’s more, by threatening the central bank’s independence, Mr. Trump could cause market havoc. Mr. Powell’s term as Fed chair — which has given him a powerful position for opposing Mr. Trump’s efforts — expires in May.
Given this backdrop, what is remarkable is the resilience of the global economy and the markets, as well as the tenacious profit-making of the major corporations that have been coping, come what may.
Rejoice in the markets’ recent calm, if you like. But success is not guaranteed, so avoid excessive risk-taking and hedge your bets.
Jeff Sommer writes Strategies, a weekly column on markets, finance and the economy.
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