Tech Stocks Stalled, Market Gains Driven by Other Companies

Less-popular sectors in the US equity market are currently outperforming, driving market gains as technology stocks falter. The “other 493” companies in the S&P 500, excluding the major tech giants like Amazon, Apple, and Nvidia, are experiencing their strongest week relative to the overall market since July. Investors are turning to areas such as energy, materials, and industrials as the appeal of tech giants diminishes due to high valuations and slowing profit growth.

This shift comes as President-elect Donald Trump prepares to assume office, with expectations that his policies will stimulate the economy and increase inflation. Simultaneously, as companies release their latest earnings reports, concerns are rising about tech companies’ profitability margins due to heavy investments in artificial intelligence.

“We’ve been witnessing a fluctuation in leadership between the Mag 7 and other 493 companies, reflecting the uncertain economic and policy landscape the market is navigating,” stated Kevin Gordon, senior investment strategist at Charles Schwab & Co. The Magnificent Seven, also including Alphabet, Meta Platforms, Microsoft, and Tesla, are projected to see a profit growth of 18% for 2025, a decline from the 34% growth in 2024. This places them behind the health care sector in earnings growth and on par with materials and industrials.

Last year, an index tracking the Magnificent Seven stocks soared by 67%, while the S&P 500 climbed by 23%. In the early stages of 2025, both indexes have risen by around 2%, showing a more balanced performance. Another indication of market strength is the outperformance of the equal-weighted S&P 500 counterpart, which assigns equal weight to companies such as Walmart and Microsoft, compared to the mainstream cap-weighted benchmark.

The market is showing signs of broadening strength, with the equal-weighted counterpart surpassing the cap-weighted benchmark in 2025. This trend underscores the momentum building among sectors outside of the tech giants, signaling a potential shift in market dynamics.

As investors adjust their strategies to navigate the evolving market landscape, it will be crucial to monitor how different sectors perform and whether the current rotation away from tech stocks towards other industries continues. The outcome of President-elect Trump’s policies and corporate earnings reports will likely influence market trends in the coming months.