Nearly half of the companies in the S&P 500 (^GSPC) are outperforming the index to start the year, a stark reversal from the last two years of narrow market leadership where investors struggled to find winning stocks outside of large-cap technology.
About a month and a half into 2025, 46% of companies in the S&P 500 are outperforming the index itself, above the roughly 30% seen in each of the last two years, which had been the lowest percentage of outperformers since the late 1990s.
Just two of the stocks outperforming the S&P 500 come from the “Magnificent Seven” tech cohort with Meta’s (META) more than 23% rise and Nvidia’s (NVDA) nearly 6% pop outpacing the roughly 4% return for the benchmark index this year.
Strategists believe an environment where more stocks are competing to outperform the index is set to persist throughout the year. Goldman Sachs chief equity strategist David Kostin wrote in a recent note to clients that the current market is more “micro driven,” meaning company-specific details are influencing stock moves more than broad factors.
This, Kostin argues, creates an opportunity for stock pickers looking to find companies that will outperform the benchmark index in 2025. Kostin listed a healthy economic growth environment, continued broadening of the AI trade, and policy uncertainty as key catalysts that will continue to drive a wide range of returns among individual stocks.
Kostin’s team pointed to the sell-off related to the growing popularity of Chinese AI company DeepSeek as an example of the growing division among stocks. Nvidia (NVDA) stock fell 17% during the sell-off, but Apple and Meta, along with software AI plays like Salesforce (CRM), finished the day higher as investors reasoned companies that are leveraging AI software could benefit from cheaper 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 wrote.
Despite continued uncertainty on tariff policy and investor caution on the prospect of Federal Reserve interest rate cuts, stocks have remained resilient this year. All 11 sectors in the S&P 500 are positive on the year. And investors have shifted which stocks they’re buying and expanded beyond the Magnificent Seven. Information Technology, which houses several Magnificent Seven tech names, is one of just three sectors to lag the S&P 500 thus far this year. Meanwhile, Financials (XLF), Materials (XLB), and Energy (XLE) are among the top performers.
