Blog — 24 July, 2025
Two Quarters, Two Moods: What Equity Markets Taught Us in H1 2025
Markets don’t always shift with policy or data – sometimes, they evolve through quiet re-positioning.
The first half of 2025 offered a distinct split: Q1 was driven by caution, Q2 by recovery. Using equity performance and sector contribution analysis across S&P 500, Russell 2000, MSCI Emerging Markets, and STOXX Europe 600, Portfolio Analytics helped us uncover not just what moved – but why.
Interested in learning more about how Portfolio Analytics was used to perform this analysis? Request more information here.
Q1 2025: Defensive Postures and Sector Stress
- S&P 500 fell over -4%, weighed down by Technology and Consumer Discretionary
- Russell 2000 dropped over -9% weighed down in similar manner
- MSCI EM delivered a modest +3% gain, with strength in Consumer Discretionary
- STOXX Europe 600 delivered a strong over +10%, led by Financials and Industrials
U.S. investors pulled back. Europe and EM leaned into undervalued, earnings consistent sectors.
Q2 2025: A Broader, More Balanced Rebound
- S&P 500 rebounded almost +11%, led by a surge in Technology
- Russell 2000 rose +8%, helped by Industrials and Technology
- MSCI EM gained +12%, with Technology, Financials, and Industrials all contributing
- STOXX Europe 600 added another +12%, continuing its strong run via broad-based sector strength
Q2 brought back optimism – but selectively. The strongest contributors were not necessarily the most volatile sectors. In fact, using Portfolio Analytics’ standard deviation analysis, we found that in S&P 500 Q1, the lowest volatility securities delivered the best returns – reinforcing that calm often outlasts chaos.
What the Data Really Shows
- Europe and EM Stayed Consistent
These regions leaned into undervalued sectors early. Their leadership continued, driven by balanced sector participation rather than headline momentum. - Technology Rebounded – But Remains Volatile
Technology remains a performance driver but with high dispersion. Across all indices, Tech was a drag in Q1 and a driver in Q2 – a reminder that volatility, not just growth, defines this space. - Industrials Were the Unsung Hero
Consistent across all regions, pointing to global capital investment trends. - Small Caps Recovered – But Didn’t Lead
Russell 2000 rebounded in Q2, but it wasn’t enough to overcome Q1’s steep losses.
What Portfolio Analytics Revealed
Thanks to the flexibility of our Portfolio Analytics mix-and-match capabilities, we examined not just sector-level returns, but also grouped securities by volatility bands (standard deviation).
One striking finding: In Q1 2025, the least volatile cohort in the S&P 500 had the highest average returns – emphasizing the value of quality and consistency in uncertain markets.
This insight goes beyond broad trends and supports more nuanced decision-making at both security and sector levels.
Key Takeaways from H1 2025
- Diversification was rewarded
Investors with exposure beyond U.S. captured upside in Financials, and Industrials – especially in Europe and EM. - Valuation discipline outperformed
High-multiple Tech names proved volatile. Sectors with cash flows and low starting valuations (industrials) delivered more consistent alpha. - Breadth improved significantly
Q1 was narrow and hesitant. Q2 saw wider participation, and many underperforming sectors rebounded in a disciplined way. - Risk-adjusted return analysis brought deeper clarity
With Portfolio Analytics’ volatility lenses, we observed that lower standard deviation securities often outperformed, especially in Q1 – challenging the assumption that higher beta delivers better upside in risk-off conditions.
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