How Stocks Managed to Rally Through the Noise in the Second Quarter
In the three months ending June 30th, U.S. and global stocks did what they’ve done many times before: they climbed a wall of worry.
If we start this story in April, we know that the market’s uneasiness was triggered in response to the shock of tariffs and accompanying fears of a global trade war/economic slowdown. In short order, the S&P 500 plunged into correction territory and dragged investor sentiment down with it. Headlines were awash with predictions of prolonged economic pain, and many investors became extremely skeptical.
Yet as I write, the S&P 500 index has crossed back into record territory, having posted its best quarterly performance in over a year.
Did all the uncertainty over trade and economic growth dissipate in these past three months, creating all the right conditions needed for a powerful market rally? Absolutely not! If anything, uncertainty and negativity are as high today as they were three months ago.1
But that’s just the thing—markets don’t need perfect conditions to move higher. In fact, one of the most consistent traits of bull markets is that they advance when expectations are low and the news is simply “less bad” than feared. That’s what we’ve seen again this quarter.
With the backdrop of somewhat extreme investor pessimism on trade and economic growth, consider the catalysts. First, better-than-expected corporate earnings. After slashing full-year profit forecasts in Q1, many companies delivered solid results and issued relatively upbeat guidance. Zacks analysts expect S&P 500 earnings to rise this year, and even more so next year. The growth outlook hasn’t vanished; it’s just been recalibrated. Read: less bad than feared.
Second, the economy continues to show resilience. Inflation has not returned in the way that many feared, the labor market remains stable, and consumers appear to be holding up. Though risks like delayed tariff impacts, a slower global manufacturing cycle, and persistent geopolitical uncertainty remain, those risks haven’t yet translated into fundamental damage. Read: less bad than feared.
You can see the pattern here. For markets, oftentimes the absence of bad news is as powerful as the presence of good news. It doesn’t take perfection to move higher. It only takes outcomes that are modestly better than expected. With delayed reciprocal tariffs and broad-based economic resilience, that’s precisely what we got in Q2.
Stocks climbing the “wall of worry” is a theme I revisit often in my columns because it’s a pattern that recurs so frequently. It makes sense as to why: investing is emotional for many, and with media narratives often grasping at bad news, it does not take much to shift expectations lower than they should be. That opens the door for any type of stabilization, or even just a pause in bad news to spark a relief rally.
In volatile markets, investors tend to wait for clarity before committing or re-committing capital. But that’s often a costly mistake. You’d be hard-pressed to find historical examples of markets waiting for full visibility or green shoots before rallying. The opposite tends to be true. This quarter’s rebound is a case in point: despite lingering questions about tariffs, inflation, and global growth, stocks surged off the April lows. Investors waiting for an all-clear likely missed the recovery.
Bottom Line for Investors
One of stocks’ hallmark characteristics is that they love to climb walls of worry, fueled not by perfect news but by news that’s not as bad as feared. The second quarter of 2025 reminded us of this pattern. Sentiment turned sharply negative in April, only for the market to rebound strongly as fundamentals held steady and policy fears began to ease.
For long-term investors, the takeaway is simple: don’t wait for certainty. Markets move ahead of headlines, not after them, and all they need is a gap between perception and reality.
Markets don’t wait for perfect conditions to move higher—they advance when reality is better than feared. Understanding these signals can help you stay ahead, even in uncertain times.
1 Wall Street Journal. June 30, 2025. https://advisor.zacksim.com/e/376582/2905785-mod-finance-lead-story/5t8fn5/1261463401/h/lvWAPJZe1Mw2dSMaXEIPB_IrVd50nquW6TUvkf8HotA
2 Zacks. June 27, 2025. https://advisor.zacksim.com/e/376582/head-to-the-q2-earnings-season/5t8fn8/1261463401/h/lvWAPJZe1Mw2dSMaXEIPB_IrVd50nquW6TUvkf8HotA
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