Footnotes & Flashbacks: Asset Returns 6-29-25

As 1H25 wraps, bonds have been solid performers with a high stakes risk menu ahead of tariff inflation and UST supply anxiety.

Jun 29, 2025

Politics vs. Economics face tough tradeoffs in 2H25

The past month posted a positive vs. negative score of 31-1 in our 32 benchmarks/ETFs with tech exposure leading the performance headlines in the top quartile. Even the small cap Russell 2000 made our top quartile for the month along with Transports (XTN) despite trade threats remaining high and more tariffs in countdown mode. The end of the “reciprocals” pause and cresting trade tensions with Canada and the EU could play a mean joke on the market unless trade partners cave and surrender. Pharma section 232 will be the EU test.
The median YTD asset return across the 32 asset lines was just under 3.7% and not very impressive. That was near the median return for the rolling 3 months. Bond ETFs were all positive YTD and all positive for 3 months except for the long duration 20+ Years UST ETF (TLT).
The YTD industry mix leaders show impressive breadth across EM equities (VWO), Industrials (XLI), Communications Services (XLC), Utilities (XLU), and the Equal Weight NASDAQ 100 (QQEW) in the top 5 with Financials (XLF), Tech (XLK) and EM Sovereign debt (EMB) rounding out the top quartile. Notable YTD line items in negative range include the Russell 2000, Homebuilders (XHB), Consumer Discretionary (XLY), Transports (XTN), and Health Care (XLY) for a diverse range of struggling industry groups that remain in the crosshairs (tariffs and slowing growth) in 2H25.
The rolling 2Q25 period showed a tech-centric mix with Tech (XLK) at #1, NASDAQ #2, Equal Weight NASDAQ 100 (QQEW) at #4, and Communications Services (XLC) #5 while Industrials (XLI) managed to break into the top 5 lineup at #3.
Despite Middle East tension, the Energy sector names came up negative for the rolling 3 months with Energy (XLE), Midstream (AMLP), and E&P (XOP) all in the red in the bottom quartile joined by Homebuilders (XHB) and Base Metals (DBB) in a sign of global cyclical fears and some supply challenge risk in oil.

As 1H25 rolled on, the return mix in the debt benchmarks ended up in good shape with all positive numbers for 1-month, 3-months, and 6-months with the YTD UST bull steepener helping after some rough patches and credit spreads performing well as the crow flies despite some high volatility with Liberation Day.

The high-level equity benchmarks that we watch show the small cap Russell 2000 struggling in negative range for 6 months even with a strong finish this past month. Growth stocks rebounded this quarter after some brutal moments along the way with some material divergence across Mag 7 names as detailed further below. The 3-month rebound was indeed very strong for Growth vs. Value, but the 6-month numbers were weak after a very strong 1-year and 2-year set of numbers.

The rolling return visual

In the next section, we get into the details of the 32 ETFs and benchmarks for a mix of trailing periods. Below we offer a condensed 4-chart view for an easy visual on how the mix of positive vs. negative returns shape up. This is a useful exercise we do each week looking for signals across industry groups and asset classes.

There is not much debate around the positive vs. negative symmetry in the above chart. The constructive economic indicators seen to date are now leaning in a more negative direction and notably on the consumer side ( PCE May 2025: Personal Income and Outlays 6-27-25). The confidence builder right now appears to be the US economy boasting the most cyclically diverse mix of services and goods industries in the modern capital markets era.

That economic breadth will be facing off in 2H25 with the most aggressive and untested set of trade policies in the postwar global economy. We got past the first inflation spike in 40 years without a recession, and we now roll into the steepest and most comprehensive and aggressive set of tariff policies since 1930.

We have a President at war with the FOMC chair (not a first by any measure) except this President thinks the seller pays the tariff. Unusual times. Nike was the latest to highlight the economic realities of the new trade policy by quantifying their tariff cost at $1 billion to Nike under their buyer pays reality (see Mini Market Lookback: Eye of the Beholder 6-28-25) (Note: I guess China, Vietnam, and Indonesia as sellers are not paying Nike’s tariffs!). Nike also announced phased-in price increases for consumers.

Coming off a banner week in equities with the Big Beautiful Bill hanging in the balance, reciprocals come to an end (in theory), and trade tension was spiking with Canada as of Friday. There is a lot of action ahead in early July for tariffs and trade.

The holiday shortened week and generally poor attention spans around July 4 still must deal with some major budget headlines (and a debt ceiling) coming to a head with early July facing some decision points for tariffs (or more pauses). The UST flight to quality factor will be interesting to watch and frame in coming days how that might dovetail with inflation fears and UST supply jitters as the debt ceiling debate gets wrapped up.

The Magnificent 7 heavy ETFs…

Some of the benchmarks and industry ETFs we include have issuer concentration elements that leave them wagged by a few names. When looking across some of the bellwether industry and subsector ETFs in the rankings, it is good to keep in mind which narrow ETFs (vs. broad market benchmarks) get wagged more by the “Magnificent 7” including Consumer Discretionary (XLY) with Amazon and Tesla, Tech (XLK) with Microsoft, Apple, and NVIDIA, and Communications Services (XLC) with Alphabet and Meta.

The tech bellwethers are broken out above in descending order of 1-week returns. We see 4 of the Mag 7 above 6% with MSFT, TSLA, and AAPL falling short. Some of the strange gyrations across the tech time horizon show Tesla’s volatility and the week performance of Apple for multiple reasons including Trump threats.

Chips have been the big winners for reasons that are blaring in the headlines every day, but Amazon has posted a weak 6 months while underperforming the NASDAQ looking back a year and just edging out QQEW. Apple has underperformed. Meanwhile, Tesla continues to drive owners to refresh their Special K supply to deal with all the turmoil and headlines.

We already looked at the 1-week results of 29-3 in Mini Market Lookback: Eye of the Beholder (6-28-25). The above return mix was a good way to head into the end the first half with the June 30 quarter wrapping on Monday. “All-time highs” in the headlines on Friday for the S&P 500 and NASDAQ made equity holders happy.

The two energy names in the red (XOP, XLE) reflect the lack of supply disruption in the Middle East. There are always plenty of theories to come up with across the decades on what can happen to Middle East supply when jets and missiles are flying and ships nervous in the Gulf. The role of Iranian supply in 2H25 as well as Russian supply can make for a very wide range of outcomes.

The 31-1 score for 1-month tells an obvious story. With Tech (XLK) at #1 and Communications Services (XLC) at #2 followed by the Mag 7 heavy NASDAQ at #3 and the S&P 500 at #4, the spike in the chips names and the sharp rally after Iran are very much in evidence.

The best news from a breadth perspective was the small cap Russell 2000 making its way back into the top quartile. Small caps are staring at waves of tariffs ahead with the Russell 2000 still negative range YTD, so that small cap rally will face some major headwinds in the summer.

The rolling 3-month posts a 24-8 score and includes the April sell-off after Liberation Day and subsequent rebound. The 3 energy ETFs in the red (XLE, AMLP, XOP) are joined by the usual low ranking Health Care (XLV) presence as discussed in other time horizons. We also see the long end of the curve undermining the 20+Y UST ETF (TLT) even with the short to intermediate bond ETFs winning. The upper tier mix for 3 months shows the rebound in Mag 7 and tech, but as noted earlier the 6-month numbers are much more muted.

The YTD score of 24-8 includes all bond ETFs in positive range with EM Sovereigns (EMB) even making it into the top quartile. Corporate credit (HYG, LQD) made it into the 2^nd quartile with the remaining 4 bond ETFs (AGG, SHY, TLT, GOVT) in the 3^rd quartile.

Tech clearly played a big role in the headlines, but the top quartile was led by EM Equities (VWO) at #1 followed by Industrials (XLI) at #2, Utilities (XLU) at #4, Financials (XLF) at #6, and EM Sovereign debt (EMB) at #8. Mag 7 heavy broad market indicators such as NASDAQ and S&P 500 were in the second quartile. Communications Services (XLC), Equal Weight NASDAQ 100 (QQEW), and Tech (XLK) were the tech members of the top quartile.

The bottom of the list held few surprises after the trade turmoil punished Transports (XTN) and stubborn mortgage rates and clear softening reported in housing and the consumer sector undermined Homebuilders (XHB). Health Care (XLV) will remain a case study in challenging moving parts. The Medicaid pain potential from the Big Beautiful Bill will not help as it stands now, and the potential for trouble looms when Pharma Section 232 gets launched and retaliation risk rises. The EU and China play very big roles in pharma related sectors.

The LTM score of 27-5 includes some obvious names in the red. Those include 2 energy (XOP on the bottom and XLE) and 2 interest rate sensitive ETFs with Homebuilders (XHB) and the long duration UST 20+Y ETF (TLT). Those are joined by Health Care (XLY) in 2nd to last behind E&P (XOP) that posted -10.2%. The diversity of the leaderboard sends a good sign as with financials (XLF, KRE), Communications Services (XLC), Industrials (XLI), and Utilities (XLU) in the top 5.

The top quartile tells a very favorable story about the perception of the banks with the broadly diversified Financials ETF (XLF) on top and Regional Banks (KRE) at #2. The leadoff names in earnings season will be large banks followed by the regionals and consumer lenders. Investors will be looking for more color on asset quality and any defensive loss provisioning.

The potential for 2H25 FOMC easing is one critical factor for banks into the fall, but the most important variable for the broader market is what loan demand, quality trends, and consumer spending appetites look like on the other side of the earnings reports and guidance.

PCE May 2025: Personal Income and Outlays 6-27-25

Durable Goods May25: Aircraft Surge, Core Orders Modest Positive 6-26-25

1Q25 GDP: Final Estimate, Consumer Fade 6-26-25

New Home Sales May 2025: Slip and Slide 6-25-25

KB Home 2Q25: Negative Industry Trends Keep Coming 6-25-25

Existing Homes Sales May 2025: Sequential Stronger, YoY Weaker 6-23-25

Footnotes & Flashbacks: Credit Markets 6-23-2025

Footnotes & Flashbacks: State of Yields 6-22-2025

Mini Market Lookback: FOMC Spoke Clearly, Iran and Trump up next 6-21-25

Lennar 2Q25: Bellwether Blues 6-20-25

FOMC Day: PCE Outlook Negative, GDP Expectations Grim 6-18-25

Home Starts May 2025: The Fade Continues 6-18-25