Equity markets in June continued their positive returns from May, making for a very good second quarter of 2025. The suspension of the earlier announced US trade tariffs and the fear of recession receding were the catalysts for strong equity markets across the globe.

US stockmarket gains were led by the information technology and communication services sectors, as investor appetite for some of the ‘magnificent 7’ stocks reignited. Stocks with exposure to Artificial Intelligence also staged a strong recovery, offsetting losses earlier in the year. Healthcare was one of the few sectors that underperformed in the quarter, as the Trump administration seeks to lower drug prices in the US.

US economic data generally remained resilient although Q1 GDP fell by 0.50% due to higher imports. This was likely because of concerns around future tariffs. Trump unveiled flagship tax and spending legislation which was passed by the House of Representatives in the month. The Bill extends tax cuts passed in 2017, increases defence spending, and cuts spending on programmes such as Medicaid. The US dollar continues to weaken. This has a negative performance impact on US shares in the funds.

 In Europe it was the Industrial sector that led the way, on the back of defence stocks good performance amid an agreement at the NATO summit for countries to lift defence spending. Two rate cuts by the European Central Bank (ECB) in the quarter was also good news for European equities.

Japan and Asia posted good equity market returns in June. In fact, Japan outperformed most other markets. Full-year company results were good, shareholders dividends increased, and buybacks rose significantly, reflecting ongoing corporate governance reforms and support for the sharemarket.

Emerging market equities were just ahead of developed market peers, helped by the weakness of the US dollar. Korea posted double digit returns over the quarter as political instability subsided following the election of a new president – Democratic Party candidate Lee Jae-myung. Strong returns were also made in Taiwan, which continues to benefit from investor optimism about artificial intelligence.

Global bond markets feared better in June, reversing May’s losses and performing well enough that over the quarter, bond markets were up around 1%. Many major central banks continued to cut interest rates, including ECB, Bank of England, Reserve Bank Australia and RBNZ. While the US federal Reserve, the Bank of Japan remained on hold, although signalled a modest easing. Bond markets benefited from this. However, there are talks now that cuts are coming to an end.

Closer to home the Reserve Bank of New Zealand (RBNZ) just recently kept the OCR at 3.25%, although signalled there could be another 0.25% reduction in August. The market reaction to this has been muted.

Looking forward the market quickly shifted focus to concerns around US debt sustainability. The Reconciliation Bill, which was approved by the House of Representatives in June, was judged to worsen US debt dynamics. The increased burden of financing the US government’s budget deficit was highlighted when Moody’s credit rating agency cut the sovereign rating to Aa1. This has now caused yield curves to steepen. This is good for a risk-reward outcome.

On the back of this, all the models were positive during June. This was thanks to the strong global equity and domestic equity returns, and also due to positive returns from fixed interest. Models with more growth assets (e.g. 98/2, 80/20) performed better for the month. However, the conservative portfolios also provided positive returns around 1% for June.