The second quarter of 2025 was marked by sharp swings in market sentiment but ultimately rewarded patient investors. Despite early turbulence driven by US tariff announcements and geopolitical tensions, global markets rebounded strongly as fears eased and economic data held up.
Economically, the US saw a modest contraction in Q1 GDP (-0.5%), largely due to pre-tariff import surges. However, employment and earnings remained firm, with three-quarters of S&P 500 companies beating expectations. In Europe, growth is picking up , supported by easing inflation, lower borrowing costs and expected fiscal stimulus. New Zealand’s economy showed tentative signs of stabilisation during the second quarter. Business confidence fell sharply in April amid global volatility, but May brought some improvement, with another 25bp OCR cut, stronger retail sales and a lower unemployment rate. In June, GDP rose 0.8% for the March quarter vs the previous quarter, though annual growth remained negative at -1.1% vs the year before. Confidence data was mixed, with consumer sentiment improving while some business activity indicators softened on the back of ongoing tariff uncertainty.
On the financial markets front, the quarter began with a sharp selloff following the US administration’s “Liberation Day” tariff package on 2 April. Equity markets dropped, bond yields rose, as fears of a broader trade war took hold. However, a 90-day suspension of reciprocal tariffs and renewed negotiations, particularly with China, helped calm markets. Risk assets recovered quickly, and by quarter-end the S&P 500 had reached a new all-time high.
Technology and growth stocks led the rebound. The “Magnificent 7” rose over 10% (in NZD terms) during the quarter, buoyed by strong earnings. In fact, global growth stocks were the top-performing asset class, and the S&P 500 posted a quarterly return of 3.8% in NZD terms.
Bond markets responded to shifting fiscal and geopolitical dynamics. The US tax reform, if implemented as planned, raised concerns about long-term debt sustainability, pushing 30-year Treasury yields to 5.15%. European bonds outperformed as inflation eased and the European Central Bank cut rates twice, bringing its deposit rate to 2.0%. NZ bond yields have been trading a little bit lower towards the end of the quarter, resulting in positive return from our NZ bond holdings.
The US dollar depreciated substantially over the quarter, down 7.1% vs a basket of other currencies (DXY index) and down 6.4% vs the Kiwi Dollar. This lowers the performance of existing US dollar denominated investments as it is more costly to convert them back into Kiwi dollar. Meanwhile, geopolitical risks, including tensions between Iran and Israel, caused short-term volatility in oil prices, but ultimately had limited market impact. Commodities broadly underperformed.
While uncertainties around fiscal policy and geopolitics persist, the quarter reinforced the benefits of staying invested through volatility.
At Aurora Capital, we remain focused on long-term outcomes, diversification, and disciplined portfolio management. If you’d like to review your KiwiSaver settings or discuss recent developments, please don’t hesitate to contact your adviser.
FundRock NZ Limited (FundRock) is the issuer and manager of the Aurora KiwiSaver Scheme. A Product Disclosure Statement is available from FundRock or Aurora Capital at www.aurora.co.nz.
DISCLAIMER
This information is provided in a general nature only and should not be relied on as financial advice. You should seek financial advice specific to your circumstances from a financial adviser before making investment decisions. Past performance is not a reliable indicator of future performance. The value of your investment may go up and down.