The U.S. stock market is undergoing a subtle transformation this year. Unlike the past two years, when the "Seven Giants" of the tech industry led the market rally, this year has seen a broader range of stocks outperforming the indices. According to Goldman Sachs, the market is now more "micro-driven," meaning stock performance is increasingly tied to individual company circumstances rather than overall market conditions.
As of mid-February, 46% of S&P 500 constituents have outperformed the index, a stark contrast to the previous two years when only 30% did. This shift indicates that the market is no longer dominated by the "Seven Giants," with investors diversifying beyond these tech behemoths. Notably, the IT sector is one of the few lagging behind the S&P 500 this year, while financials and materials sectors are leading.
Despite this shift in focus, risk appetite remains high. A recent Bank of America survey reveals that global fund managers' cash allocations are at a 15-year low of 3.5%, indicating sustained risk tolerance despite the tech giants' faltering momentum.
Goldman Sachs' Chief Equity Strategist, David Kostin, notes that the market's micro-driven nature creates opportunities for stock pickers aiming to outperform the indices by 2025. Key catalysts include robust economic growth, the ongoing AI boom, and policy uncertainties. The recent debut of China's AI model DeepSeek exemplifies this trend, as it triggered divergent stock movements, with NVIDIA (NVDA, Financial) notably dropping 17% while other AI-related companies like META saw gains.
