The U.S. stock market has seen a notable shift in 2025, with nearly half of the companies in the S&P 500 (^GSPC) outperforming the index itself. This marks a significant departure from the past two years, when the market was driven primarily by a handful of large-cap technology stocks.
As of mid-February, 46% of S&P 500-listed companies have outpaced the index’s performance, a sharp contrast to the approximately 30% seen in 2023 and 2024—one of the lowest levels of stock breadth since the late 1990s. The broadening of market leadership indicates a potential shift in investor sentiment and strategy, with a growing number of industries contributing to market gains.
Tech Giants Lose Their Grip on Market Leadership
For the past two years, the stock market has been dominated by the “Magnificent Seven” tech stocks, including Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Amazon (AMZN), Meta (META), Alphabet (GOOGL), and Tesla (TSLA). However, so far in 2025, only two of these companies—Meta and Nvidia—have managed to outperform the S&P 500.
Meta’s stock has surged more than 23% year-to-date, while Nvidia has posted gains of nearly 6%. This is in contrast to the roughly 4% return of the broader S&P 500 index over the same period. Other big tech names, such as Microsoft and Apple, have lagged, with investors increasingly diversifying their portfolios beyond the sector.
Stock Market Becomes “Micro-Driven”
According to David Kostin, chief equity strategist at Goldman Sachs, the market has become increasingly “micro-driven” in 2025, meaning company-specific factors are now playing a larger role in determining stock performance, rather than broad economic or macroeconomic trends.
“This creates an opportunity for stock pickers to find companies that will outperform the benchmark index this year,” said Kostin in a recent note to clients. He pointed to strong economic growth, the ongoing expansion of artificial intelligence (AI) applications, and policy uncertainties as key drivers behind stock performance in 2025.
Kostin also highlighted the recent sell-off of Nvidia shares as an example of how the market is reacting to company-specific news rather than industry-wide trends. Nvidia’s stock fell by 17% following reports of rising competition from Chinese AI company DeepSeek. However, other AI-related stocks such as Meta, Apple, and Salesforce (CRM) gained on the same day, as investors reassessed their AI strategies and allocated capital to companies poised to benefit from software-driven AI solutions.
“Ultimately, the market reaction was discerning rather than indiscriminate, as stocks moved according to their individual exposure to the new information rather than in unison,” Kostin explained.
A More Resilient and Balanced Market in 2025
Despite ongoing uncertainty surrounding Federal Reserve interest rate policies and tariff concerns, the stock market has demonstrated resilience so far in 2025.
All 11 sectors within the S&P 500 are showing positive returns, with Financials (XLF), Materials (XLB), and Energy (XLE) emerging as the top-performing sectors. Meanwhile, Information Technology—previously the best-performing sector—is now one of just three sectors underperforming the S&P 500.
The rotation into traditionally underappreciated sectors suggests that investors are broadening their focus beyond high-growth technology names and diversifying into cyclical stocks that benefit from economic expansion. This shift reflects growing confidence in the economy’s underlying strength and the ability of various industries to sustain growth independent of the tech sector.
Opportunities for Stock Pickers
With a wider range of stocks contributing to gains, investment strategists see 2025 as a strong year for active stock picking. The diversification of market performance means that investors can no longer rely solely on a handful of mega-cap stocks to drive returns.
Some of the key areas of focus for investors include:
- Artificial Intelligence Expansion: AI-driven companies continue to attract investor attention, particularly those that provide AI infrastructure, software, and applications beyond hardware.
- Industrial & Materials Sector: As global supply chains stabilize, industrials and materials companies are benefiting from increased infrastructure investment and production growth.
- Energy Markets: With global oil prices fluctuating and renewable energy initiatives accelerating, energy stocks have seen renewed interest from both growth and value investors.
Conclusion: A Broader Market with More Opportunities
The start of 2025 has brought a significant shift in market dynamics, with nearly half of S&P 500 companies outperforming the index—a level not seen in years. This shift marks the end of the narrow market leadership that characterized previous years and signals an opportunity for diversified investment strategies.
While macroeconomic factors such as Federal Reserve policies and trade tensions remain critical, the market’s increased focus on company-specific performance suggests that investors must be more selective in their stock choices. As the year progresses, a balanced approach that includes both established leaders and emerging growth opportunities will likely be the key to success in the evolving stock market landscape.
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