Why Market Leadership is Changing—And What to Do About It

In 2024, less than 30% of companies in the S&P 500 outperformed the overall index, and most of them came from one sector: Technology.

This level of market concentration hasn’t happened since rare periods like 1998–1999, 1980, and 1973. Last year, stocks did well overall, and a diversified portfolio with an overweight to Technology held up.

But by the end of last year, the 10 largest companies in the S&P 500—most of them Technology companies—made up almost 40% of the entire index. The previous peak for this level of concentration was 29%, last reached in the late 1990s.¹

Many investors were wondering how long mega-cap technology companies would outperform and maintain this index dominance. But a better question for investors to ask, in our view, was what tends to happen to stock market performance after periods of extreme market concentration like we’ve seen in recent years?

The answer, using history as a guide, is that periods of highly concentrated performance tend to be followed by broader market participation, with underperforming sectors seeing strong gains. This tends to happen as economic conditions shift, and as the business cycle matures. Throughout history, we’ve seen this type of ‘rotation’ over and again. A category dominates for a long time and its leadership seems impenetrable, but then it becomes a lagging or middling sector or region.

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A Better Way Forward for Passive Investors

Passive investing using ETFs has become popular, allowing virtually every investor to participate in the stock market with an ETF index fund that tracks the S&P 500. Unfortunately, these funds make it difficult to beat the market—because an index fund essentially is the market.

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2025 appears to be another case study for how these rotations play out.

Through May 30, the S&P 500 is down about -0.50% for the year, while foreign stocks (MSCI World ex-US) are up roughly +16%. We could detail a few reasons why we think this is happening—global central banks are lowering interest rates, Europe is implementing big fiscal stimulus programs, developed countries for the first time in years have more economic policy certainty than the U.S. Or as seen below, U.S. stocks had simply been pricier than foreign counterparts for years running:

12 Month Forward P/E Ratios

These are all valid explanations. But fundamental or technical insights about regional performance divergence are less important than recognizing the investment principle at work. In our view, it’s simply that leadership was bound to change hands at some point. Over time, no one sector, industry, region, or country consistently outperforms.

The current rotation is also showing up across styles and sectors. As of May 30, value stocks are up 1.62% while growth stocks are down -2.5%, which runs counter to what we’ve seen in previous years. And as seen in the table below, sector leadership has changed from the first half of 2024 compared to year-to-date 2025:

Top Performing S&P 500 Sectors

First Half of 2024	Year-to-date (May 30) 2025
Technology	Industrials
Communication Services	Utilities
Utilities	Financials

Source: S&P Global 

The Utilities sector has maintained its position near the top of the leaderboard, likely tied to rising power demand associated with training artificial intelligence. But historically, Utilities has been a defensive sector and tends to lag during economic expansions. Again, a sector’s relative performance often changes from year to year.

Bottom Line for Investors

Prudent investing means being positioned for—not reacting to—changes in market leadership. The narrow market concentration we saw in 2023 and 2024 showed major signs of unwinding in 2025. For investors to fully capture the rotation, one of two things must have been true: either you are a perfect market timer, or you own a diversified portfolio of assets giving you exposure to many sectors and regions. The latter is the more reliable path, in our view.

In recent years, passive investing has become a popular approach, allowing virtually every investor to participate in the stock market with an ETF index fund that tracks the S&P 500.

However, a purely passive approach cannot beat the market (because it basically is the market). That’s why Zacks Advantage offers an actively managed robo advisor that:

• Invests exclusively with ETFs
• Uses technology to recommend the appropriate mix of equities and bond ETFs to help achieve your investing goal and specific risk tolerance
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Get our free guide, A Better Way Forward: Actively Managing Passive Index Funds ⁴, to learn the 4 issues that can hold back returns for passive investors, and how Zacks Advantage can help you overcome them.

Download our FREE Guide⁴

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¹ Northwestern Mutual. 2025.

² Zacks Investment Management may amend or rescind the A Better Way Forward: Actively Managing Passive Index Funds guide offer for any reason and at Zacks Investment Management’s discretion.

³ Black Rock. 2025.

⁴ Zacks Investment Management may amend or rescind the A Better Way Forward: Actively Managing Passive Index Funds guide offer for any reason and at Zacks Investment Management’s discretion.

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