School bells are ringing! We hope your summer was restful yet lively, filled with meaningful moments, new adventures and time to recharge for the exciting season ahead. While kids took the summer off, equities hardly rested. Year-to-date, the S&P 500 Index is up nearly 10%, while international developed markets (as measured by the MSCI EAFE Index) surged 24% and emerging markets (as measured by the MSCI Emerging Markets index) up 21%. Both the S&P 500 and EAFE indices have reached all-time highs.
What’s likely behind these strong “grades”? In part, corporate America delivered earnings well above forecasts. In the second quarter, S&P 500 profits rose about 12% from one year earlier—more than double the 5% growth analysts had projected just one month prior. That performance was led by technology and communication services companies, particularly those tied to artificial intelligence. From chipmakers like Nvidia to companies supplying data centers, the AI wave seems to be a major driver of both earnings’ growth and investor optimism.
At the same time, CEOs sounded more confident on earnings calls, with mentions of “recession” plunging 84% from earlier in the year. That shift in tone seemed to help calm investors’ nerves, even as tariff worries and inflation headlines persisted. Like students settling into a new school year after summer uncertainty, markets may have found a steadier rhythm.
International markets have also been standout performers. Developed international equities have outpaced U.S. markets nearly threefold in 2025. BSW’s global diversification benefitted from this strength. Exposure to international stocks has not only provided balance but also created outperformance versus U.S. markets, underscoring why a diversified “curriculum” remains central to our investment philosophy.
Of course, not every student in the class is excelling. The market has been bifurcated—tech and AI-linked companies are thriving, while areas like packaging, energy, and real estate have faced headwinds. Some sectors are still stuck in a “muddle-through” environment, reflecting the uneven nature of today’s economy.
Meanwhile, the economic “pop quizzes” continue to deliver mixed results. Job growth has cooled, though unemployment claims remain subdued. Inflation readings have been contradictory—encouraging consumer-price data followed by more worrisome wholesale price numbers. Investors are also watching valuations closely: the S&P 500 trading at about 22.5 times forward earnings, above its 10-year average, leaves little margin for error if growth falters.
Still, as the school year kicks off, investors can take heart: despite rising tariffs and policy shifts earlier this year, corporate America has demonstrated resilience and adaptability. Strong earnings, fading uncertainty, and the potential for AI-driven productivity gains have all lifted markets to record levels.
At BSW, we are excited about the progress markets have made, but we’ll be keeping our “heads in the books.” Just as students prepare for midterms after a strong start, we’re focused on studying the data—watching the yield curve, inflation trends, employment reports, and the Fed’s next moves. While the market’s first-half report card is impressive, the real test will be sustaining this momentum through year-end and beyond.
Katherine St. Onge, Director of Investments
