How did Financial Markets do?
U.S. large cap stocks began the second quarter in the midst of a punishing decline of nearly 20%, as investors fretted about tariffs and geopolitics. What followed was a sharp recovery, with major indices erasing their losses and hitting new highs by the end of June. Market reaction to the U.S. inserting itself into Middle East tensions was remarkably limited, as investors focused on 8% quarterly earnings growth as compared to the prior year and mostly strong 'hard' economic data, while 'soft,' survey-based data was less encouraging. International stocks lengthened their lead over the U.S., as the European Central Bank (ECB) and other central banks continued to be more accommodative than the U.S. Federal Reserve.
Bonds advanced modestly in the quarter as interest rates finished little changed. The U.S. Treasury yield curve slightly steepened as investors anticipated increased issuance related to the anticipated deficits caused by the administration's spending bill. Municipal bonds fell slightly and remain under water for 2025, as record new bond issuance saps demand for existing bonds. International REITs rose sharply in the quarter as investors sought assets with attractive valuations, and where central bank easing is seen to lessen borrowing costs. U.S. REITs fell in the quarter and are slightly positive for the year, as office vacancy rates are not improving and other sectors such as data centers slow.
Figure 1: Market performance (ranked by Q2 2025 total return)
| Asset class | Q2 2025 [Index Total Returns (%)] | 1-Year [Index Total Returns (%)] | 3-Year (annualized) [Index Total Returns (%)] |
|---|---|---|---|
| High-yield bonds | 3.758 | 9.983 | 9.849 |
| U.S. treasuries | 1.726 | 6.758 | 2.748 |
| Emerging markets bonds | 7.775 | 13.549 | 7.621 |
| Treasury Inflation-Protected Securities (TIPS) | 0.480 | 5.843 | 2.340 |
| Emerging markets stocks | 11.988 | 15.286 | 9.702 |
| Investment-grade corporate bonds | 1.818 | 6.829 | 4.190 |
| U.S. large cap stocks | 10.942 | 15.164 | 19.710 |
| International small cap stocks | 16.593 | 22.464 | 13.297 |
| Securitized bonds | 2.543 | 7.950 | 3.047 |
| Municipal bonds | -0.124 | 1.113 | 2.499 |
| International large cap stocks | 11.775 | 17.727 | 15.967 |
| U.S. small cap stocks | 8.500 | 7.681 | 9.998 |
| U.S. real estate investment trusts (REITs) | -1.150 | 8.586 | 5.277 |
Source
Source: Morningstar Direct, as of June 30, 2025.
Performance figures shown are total returns for each asset class during the designated period. Indexes used are: High-yield bonds, Bloomberg High Yield Very Liquid Index; U.S. Treasuries, Bloomberg U.S. Treasury 3-7 Year Bond Index; Emerging markets bonds, Bloomberg Emerging Markets Local Currency Government Bond Index; Treasury Inflation-Protected Securities, Bloomberg TIPS Index; Emerging markets stocks, MSCI Emerging Markets Index; Investment-grade corporate bonds, Bloomberg U.S. Credit Index; U.S. large cap stocks, S&P 500® Index; International developed market small cap stocks, MSCI EAFE Small Cap Index; Securitized Bonds, Bloomberg Securitized Index; Municipal bonds, Bloomberg Municipal Index; International developed market large cap stocks, MSCI EAFE Index; U.S. small cap stocks, Russell 2000® Index; U.S. real estate investment trusts, S&P United States REIT Index. Past performance does not guarantee future results. Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.
How did Schwab Intelligent Portfolios do?
For the second consecutive quarter, global portfolios led U.S. models, and income portfolios posted comparatively modest returns as the technology-led rally left income and value-oriented stocks behind. With growth firmly in control, fundamental indexing lagged market cap indices in the quarter.
Looking ahead
The Intelligent Portfolios are designed to help our clients achieve their objectives over the long term. While this quarter saw its share of volatility, we know that creating and sticking to a plan, maintaining a diversified approach to investing, and not overreacting to current events gives investors the best chance of achieving their objectives. We have many resources available designed to help you achieve your investment goals and we're always available by phone to answer any questions you may have.
Thank you—we look forward to continuing to serve you in the coming quarters and years ahead.
Additional Resources
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1This quarterly commentary is designed to provide you with insight into the market environment during the quarter. How your portfolio performed is dependent upon your asset allocation across the risk spectrum from conservative to aggressive, as well as criteria such as when you opened your account, the timing of any deposits/withdrawals, timing of portfolio rebalances, whether you are enrolled in tax-loss harvesting and other criteria.
Please read the Schwab Intelligent Portfolios Solutions disclosure brochures for important information, pricing, and disclosures related to the Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium programs.
Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium® are made available through Charles Schwab & Co., Inc. ('Schwab'), a dually registered investment adviser and broker-dealer. Portfolio management services are provided by Charles Schwab Investment Management, Inc. ("CSIM"). Schwab and CSIM are subsidiaries of The Charles Schwab Corporation.
Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium® are designed to monitor portfolios on a daily basis and will also automatically rebalance as needed to keep the portfolio consistent with the client's selected risk profile. Trading may not take place daily.
Tax‐loss harvesting is available for clients with invested assets of $50,000 or more in their account. Clients must choose to activate this feature.
Diversification, asset allocation, automatic investing and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets.
Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly. For more information on indexes please see https://www.schwab.com/indexdefinitions.
Past performance is no guarantee of future results, and the opinions presented cannot be viewed as an indicator of future performance.
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