The 2025 Stock Market Rally: Beyond the Magnificent Seven

A Broader Market Performance in 2025 The start of 2025 has marked a significant shift in stock market dynamics, breaking away from the dominance of the "Magnificent Seven" mega-cap tech stocks that led the market over the past two years. Nearly half of the companies in the S&P 500 (^GSPC) are now outperforming the index itself, a stark contrast to the previous two years when only about 30% of S&P 500 constituents managed to surpass the benchmark's returns.

As of mid-February 2025, 46% of S&P 500 stocks are ahead of the index, signaling a more diversified market. This stands in contrast to the historic lows of broad market participation seen in recent years, which had mirrored trends last observed in the late 1990s.

Interestingly, among the Magnificent Seven, only Meta Platforms (META) has outperformed the broader market, posting a 23% gain compared to the S&P 500’s approximate 4% return year-to-date. This suggests that investors are increasingly looking beyond the large-cap tech sector for opportunities.

Market Trends Favoring Stock Pickers Goldman Sachs chief equity strategist David Kostin describes the current market as more "micro-driven," where individual company fundamentals and sector-specific trends influence stock movements more than broad macroeconomic factors. According to Kostin, this environment presents a strong opportunity for stock pickers seeking individual outperformers rather than relying solely on index-wide gains.

Several key factors are shaping the market outlook for 2025:

• Sustained Economic Growth: A resilient economic backdrop is supporting corporate earnings and consumer demand, fueling optimism across various sectors.

• Broadening AI Trade: The artificial intelligence revolution continues to drive interest in companies beyond traditional hardware producers, particularly in software and services that leverage AI for efficiency and profitability.

• Policy Uncertainty: Regulatory and fiscal policies, including potential tax and trade policies, continue to create variability in stock performance across industries.

A prime example of these divergent trends occurred with the recent sell-off linked to the rise of Chinese AI company DeepSeek. While Nvidia (NVDA) saw a 17% decline due to fears of increased competition, other AI-driven firms like Apple (AAPL), Meta, and software-focused companies such as Salesforce (CRM) managed to rise, highlighting the market's selective approach to AI investments.

Sectoral Rotation and Expanding Opportunities Despite ongoing uncertainties surrounding tariff policies and Federal Reserve rate decisions, stock markets have shown resilience. Notably, all 11 sectors of the S&P 500 have posted positive year-to-date performance. Interestingly, the Information Technology sector, home to many of the Magnificent Seven, is one of only three sectors trailing the S&P 500’s returns.

Meanwhile, investors are rotating into other sectors, such as:

• Financials (XLF): Benefiting from stronger-than-expected economic growth and potential shifts in interest rate expectations.

• Materials (XLB): Driven by increased demand for raw materials amid infrastructure investments and global economic expansion.

Bank of America's latest global fund manager survey reflects a continued risk-on sentiment, with cash allocations dropping to 3.5%—the lowest level in 15 years. This trend underscores that while enthusiasm for the Magnificent Seven trade may be waning, overall market confidence remains robust.

Trump’s Antitrust Policy: A Continuation of Biden-Era Scrutiny President Trump’s new Federal Trade Commission (FTC) Chair, Andrew Ferguson, has signaled that his administration will maintain a stringent stance on antitrust enforcement. In a recent post on X (formerly Twitter), Ferguson confirmed that the Biden-era merger guidelines will remain in effect, setting the regulatory framework for corporate consolidation under his leadership.

These guidelines, initially established in 2023 under former FTC Chair Lina Khan, expanded the agency’s scope for blocking both vertical and horizontal mergers that could potentially reduce market competition. Despite previous speculation that Trump’s administration might take a more lenient approach to corporate mergers, Ferguson’s statement suggests a continuation of aggressive antitrust scrutiny.

This policy stance is likely to impact a range of industries, particularly technology, healthcare, and financial services, where large-scale mergers have been under increasing regulatory examination. Companies planning significant acquisitions may now face extended review periods and a heightened risk of regulatory intervention.

Conclusion The stock market landscape in 2025 is evolving beyond the concentrated dominance of the Magnificent Seven, with nearly half of S&P 500 companies outperforming the index. This broader market participation is creating opportunities for investors to diversify their portfolios beyond mega-cap technology stocks.

Meanwhile, regulatory oversight on mergers remains stringent, with Trump’s FTC maintaining the Biden-era approach to antitrust enforcement. As investors navigate this shifting environment, stock selection and sector rotation are becoming increasingly critical to achieving outsized returns in 2025 and beyond.