S&P 500: Outperforming Companies Signal a Broadening Market

Nearly half of the companies within the S&P 500 (GSPC) are exceeding the index's performance for the year 2025, marking a significant departure from recent years where technology giants dominated market leadership.

Since the start of 2025, 46% of S&P 500 companies have outperformed the index, surpassing the approximately 30% observed in the past two years. This represents the lowest proportion of outperforming stocks since the late 1990s.

Notably, only two companies from the "Magnificent Seven" tech cohort, Meta (META) and Nvidia (NVDA), have outperformed the S&P 500. Meta has surged by over 23%, while Nvidia has gained nearly 6% compared to the index's 4% return.

Analysts anticipate that this trend of broader market participation will continue throughout the year. Goldman Sachs chief equity strategist David Kostin believes that the current market is "micro driven," where company-specific factors play a more significant role in stock movements than general market conditions.

Kostin emphasizes that this presents opportunities for investors to identify individual companies with potential to outperform the benchmark index. He cites favorable economic growth, expanding AI applications, and policy uncertainty as key catalysts that will drive a diversity of returns among stocks.

Kostin's team highlights the sell-off related to the rising popularity of Chinese AI company DeepSeek as an example of the growing divergence in stock performance. Nvidia (NVDA) declined by 17% during the sell-off, while Apple, Meta, and Salesforce (CRM) closed the day higher, indicating that investors perceive companies leveraging AI software as potential beneficiaries of cheaper AI solutions.

Despite ongoing uncertainties surrounding tariff policies and Federal Reserve interest rate cuts, stocks have exhibited resilience in 2025. All 11 sectors within the S&P 500 have posted positive returns year-to-date.

Investors have also diversified their portfolios beyond the Magnificent Seven, with Information Technology lagging the S&P 500 while Financials (XLF), Materials (XLB), and Energy (XLE) have been among the top performers.

Bank of America's February survey of global fund managers shows that investor allocation to cash has fallen to 3.5%, the lowest level in 15 years. This suggests that the willingness to take on risk in the market remains despite the waning dominance of the Magnificent Seven.