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(Bloomberg) -- Some less-loved sectors of US equities are taking the lead in driving the market higher to start 2025, as lofty valuations and slowing profit growth dull the appeal of the technology giants that fueled much of last year’s strength.
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The S&P 500 Index’s “other 493” — companies outside the so-called Magnificent Seven group of giants that includes Amazon.com Inc., Apple Inc. and Nvidia Corp. — are on track for their best week since July relative to the broad market, with traders piling into areas like energy, materials and industrials.
The rotation is occurring as President-elect Donald Trump is poised to take office next week, with investors speculating that his policies will boost the economy and potentially quicken inflation. It’s also happening as the latest cycle of corporate earnings reports is under way, with heavy spending by tech giants on artificial intelligence raising concern about their profit margins.
“We’ve seen fits and starts in leadership shifts between the Mag 7 and other 493, but I think that’s emblematic of the highly uncertain economic and policy environment the market is still facing,” said Kevin Gordon, senior investment strategist at Charles Schwab & Co.
The Magnificent Seven cohort, which also includes names like Alphabet Inc., Meta Platforms Inc., Microsoft Corp., and Tesla Inc. — is projected to post a combined profit increase of 18% in 2025, down from 34% for 2024, per Bloomberg Intelligence data. With that performance, the group would trail health care in full-year earnings growth and come in near materials and industrials, according to BI.
Last year, an index tracking the Magnificent Seven stocks surged 67%, while the S&P 500 advanced 23%. To start 2025, the two are about even, gaining roughly 2%.
There are other signs of broadening market strength. The S&P 500’s equal-weighted counterpart, which gives as much weighting to Walmart Inc. as Microsoft, is outperforming the mainstream, cap-weighted benchmark in 2025 so far.
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