Nearly Half of S&P 500 Companies Outperform Index in 2025
Market leadership has shifted significantly in 2025, with a wider range of companies outperforming the S&P 500 (^GSPC) than in recent years. As of mid-February, 46% of companies in the index have exceeded its returns, a marked increase from the roughly 30% seen in the past two years.
This trend reflects a shift away from the dominance of large-cap technology stocks, known as the "Magnificent Seven." Only two Magnificent Seven stocks, Meta (META) and Nvidia (NVDA), have outperformed the S&P 500 so far in 2025.
Market strategists attribute this broader market participation to a "micro driven" environment, where company-specific factors are playing a more significant role. This creates opportunities for stock pickers to identify companies poised to beat the benchmark.
Factors driving market returns include economic growth, the expanding AI trade, and policy uncertainty. The sell-off triggered by the rise of Chinese AI company DeepSeek highlights the increasing divergence among stocks.
Despite ongoing uncertainty and Federal Reserve interest rate concerns, all 11 sectors in the S&P 500 remain positive for the year. Investors have diversified their portfolios beyond the Magnificent Seven, with sectors such as Financials (XLF), Materials (XLB), and Energy (XLE) among the top performers.
Bank of America's recent survey indicates that investors are allocating less to cash, reflecting a continued risk-on mentality despite the underperformance of some tech giants.