Nearly Half of S&P 500 Companies Outperform Market in 2025

Nearly half (46%) of S&P 500 companies have outpaced the index since the start of 2025, marking a significant shift from previous years where market leadership had been concentrated in a few large-cap tech stocks. This percentage exceeds the roughly 30% observed in recent years, representing the highest proportion of outperformers since the 1990s.

Tech's Dimmed Dominance

Only Meta and Nvidia, two members of the "Magnificent Seven" tech cohort, have outperformed the S&P 500 this year. Meta's 23% rise and Nvidia's 6% gain contrast with the index's modest 4% return.

Micro-Driven Market Dynamics

Strategists predict a continued environment where stock performance depends more on company-specific factors than broader market trends. Goldman Sachs' David Kostin emphasizes that "micro-driven" market dynamics create opportunities for investors to identify companies positioned for outperformance.

Key Market Catalysts

Kostin identifies several key catalysts that will shape stock returns in 2025:

* Healthy economic growth
* Expansion of the AI industry
* Policy uncertainty

AI's Impact on Stock Valuations

The sell-off surrounding the rise of Chinese AI company DeepSeek exemplifies the growing disparities in stock performance. Nvidia lost 17%, while Apple, Meta, and Salesforce gained, reflecting investor expectations that companies leveraging AI software could benefit from cheaper AI solutions.

Broader Sector Performance

Despite lingering tariff policy uncertainty and caution over potential Fed interest rate increases, the S&P 500 remains resilient. All 11 sectors are in positive territory year-to-date, with Financials, Materials, and Energy leading the gains. Information Technology, which includes members of the Magnificent Seven, is one of the few sectors trailing the S&P 500.

Reduced Cash Allocation

Bank of America's survey indicates that global fund managers' cash allocation has dropped to 3.5%, the lowest level in 15 years. This suggests that investors are willing to take more risk, despite the fading allure of the Magnificent Seven trade.