Q2 2025 Market Outlook: Recalibrating for What’s Next

The second quarter of 2025 marks a recalibration of investor psychology. Following a period of strong equity market performance in 2023 and 2024, significant policy uncertainty has forced a re-evaluation of the outlook for the global economy and geopolitics.

At IEQ Capital, we view this environment from a lens of opportunity: with the benefit of thoughtful portfolio diversification, we believe market dislocation may present long-term opportunity for disciplined, patient investors.

From “Everything Rally” to “Policy Whiplash”

The synchronized gains across asset classes that defined prior cycles have largely faded. Recent tariff policies, coupled with post-pandemic fiscal adjustments, have cooled momentum in U.S. markets. While a broad-based recession is not currently confirmed by most indicators, uncertainty remains elevated. This shift has brought inflation and interest rate risk back to the forefront for investors.

We believe the current environment requires greater selectivity and a more nuanced approach to portfolio construction. With inflationary pressures appearing more persistent and rates no longer anchored at historic lows, traditional “stock/bond” allocation models may need adjustment, including the potential for the integration of less correlated private investments.

“Clients today are navigating a more nuanced investment landscape,” said Andrew Venturi, Managing Director at IEQ Capital. “Our approach remains focused on targeted repositioning—emphasizing quality assets that can endure through different economic regimes.”

Volatility Is the Price of Transition

Markets today are navigating through structural ambiguity. Equity valuations have come under pressure, while U.S. Treasury markets have experienced heightened volatility—an unusual move for assets historically seen as safe havens.

That said, today’s volatility may be tomorrow’s opportunity. In some corners of fixed income, particularly higher-quality credit, outsized volatility in otherwise fundamentally attractive sectors may present opportunities to generate income without disproportionate risk Municipal and mortgage securities are examples of these potentially unjustified casualties of broader market volatility. Overall, our view is that thoughtful diversification across asset classes remains important, especially as traditional correlations continue to shift. These market environments provide the opportunity to refine one’s asset allocation as opportunities present themselves.

“We view this as a normalization of risk, not a signal of distress,” said Jimmy Morris, Managing Director at IEQ Capital. “The path forward favors thoughtful positioning in investments where yield, liquidity, and quality can coexist.”

Private Markets: Discounted, But Not Distressed

In private credit, we have not yet observed widespread signs of stress. Spreads remain relatively stable, and default levels appear modest by historical standards. Still, we are monitoring the macro landscape carefully for any emerging risks. As always, manager selection and underwriting discipline remain central to performance.

Private equity valuations, meanwhile, appear discounted relative to public markets. While past performance is not indicative of future results, historical cycles have shown that these divergences can create compelling entry points for long-term investors. We are observing increased activity in the secondary market as well, where certain transaction types may offer enhanced liquidity, diversification, and potentially discounted entry valuations.

Select areas of real estate, particularly those that have already undergone significant repricing, may present opportunities to capture inflation-linked cash flows, though the recovery is likely a multi-year story.

“The repricing we are seeing in private markets is more a function of capital scarcity than fundamental deterioration,” said John Micek, Managing Director at IEQ Capital. “For long-term investors, this environment provides a chance to allocate with greater discipline and stronger negotiating leverage.”

Venture and Liquidity: A Measured Outlook

Venture capital continues to be impacted by the constrained IPO environment. With fewer opportunities for liquidity, later-stage venture and growth equity businesses may see delayed exits. Still, we believe broader innovation trends within the venture space remain intact and select strategies may benefit from more disciplined capital deployment going forward.

Secondaries may become an increasingly important tool in the current environment. As liquidity needs drive motivated selling, some investors may find opportunities to access assets at more favorable pricing. However, outcomes are highly dependent on structure, timing, and transaction specifics.

Navigating a More Complex Landscape

Overall, we view Q2 2025 not as a crisis, but as a complex environment requiring intentional decision-making. This is not a time for blanket risk-off positioning, nor for chasing yesterday’s momentum.

Regardless of market conditions, IEQ focuses on quality, liquidity, and flexibility. In today's market, we continue to evaluate inflation-aware strategies, monitor dislocations across private markets, and consider the role of fixed income in this new rate regime. Rather than positioning for a specific outcome, our goal is to build portfolios that can adapt across multiple potential scenarios.

Source: Vanguard as of April 2025. 

Closing Thought

We do not believe the next phase of this market will reward passive assumptions or reactive shifts. It is a time to be steady, not static, and curious without being speculative. While uncertainty remains a dominant theme, we see that as a reason to lean into thoughtful planning and disciplined portfolio construction.