30th May 2025– U.S. megacap technology and growth stocks have once again surged to the forefront of market leadership, but many investors say a broad-based rally could still be on the horizon for 2025 — assuming the U.S. economy holds steady and valuations remain attractive for a wider swath of companies.
After a volatile start to the year, the so-called Magnificent Seven — Apple, Microsoft, Meta Platforms, Nvidia, Amazon, Alphabet, and Tesla — have powered a renewed rebound in equities since early April, following a major market selloff triggered by President Donald Trump’s controversial “Liberation Day” tariff announcement on April 2.
Since April 8, when the market began to recover from that shock, the Magnificent Seven have accounted for more than 40% of the S&P 500’s total return, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. A Thursday rally in Nvidia shares, which climbed 3% on strong earnings, provided fresh momentum to the group and reignited the AI trade that has dominated Wall Street narratives since late 2023.
Despite the rebound in tech stocks, investors say the conditions are ripe for a more inclusive rally. Improving corporate earnings outside of tech, along with more compelling valuations across sectors like industrials, consumer staples, utilities, and financials, are prompting money managers to look beyond Silicon Valley giants.
“We were pretty poised to see a broadening of market participation coming into the year,” said Michael Reynolds, vice president of investment strategy at Glenmede. “We think that story remains intact. The rest of the market’s earnings growth could actually be competitive with some of the megacap tech firms.”
Indeed, a key barometer of this shift — the equal-weight version of the S&P 500, which gives the same importance to each company regardless of size — has recently begun to track more closely with the market-cap-weighted index after underperforming for much of the past two years.
That suggests investor attention is gradually rotating away from just the tech behemoths. The top-performing S&P 500 sectors this year include industrials, consumer staples, utilities, and financials — sectors that traditionally benefit from economic stability and rising demand across broader industries.
Still, the dominance of the Magnificent Seven is hard to ignore. While the S&P 500 has gained over 18% from its April lows, the Magnificent Seven ETF (MAGS.Z) has soared more than 30%. That performance echoes their leadership in 2023 and 2024, during which the group was responsible for well over half of the index’s 58% cumulative two-year return.
The rally in megacap stocks has been driven in part by a strong first-quarter earnings season and improved sentiment around the artificial intelligence sector — a key revenue engine for several of the Magnificent Seven, especially Nvidia. However, even the AI leader acknowledged new geopolitical risks, particularly amid rising tech tensions between the U.S. and China.
Valuations for the Magnificent Seven are again on the rise. Their median price-to-earnings (P/E) ratio climbed to around 28 times forward earnings, up from April’s low of 22.2, according to LSEG Datastream. In contrast, the broader S&P 500 stands at a P/E of 21.4, indicating that many large-cap stocks outside the tech sector remain more attractively priced.
“Investors are chasing exposure by buying index funds heavily weighted in these megacaps,” said Michael O’Rourke, chief market strategist at JonesTrading. “It’s easier to just go for the index or the big names — they’re liquid and you can quickly add exposure that way.”
But O’Rourke also warned that headline-driven trading needs to subside for true market breadth to return. “When the market is less focused on tariffs and geopolitics, we’ll see more broadening.”
A key factor in this potential shift lies in the earnings growth gap. Last year, the Magnificent Seven saw their earnings rise 36.9%, compared to just 7% for the rest of the S&P 500. But in 2025, analysts expect that gap to narrow: earnings for the Mag 7 are projected to grow 15.9%, while the rest of the index could see a 6.5% increase.
“Earnings growth is beginning to broaden,” said Chris Fasciano, chief market strategist at Commonwealth Financial Network. His firm is advising clients to diversify their equity exposure — particularly in financials, industrials, and mid-cap stocks.
Still, the allure of the Magnificent Seven may not fade quickly. As investors weigh the risks of a potential economic slowdown, these companies are increasingly viewed as defensive plays, with robust balance sheets and business models that can weather macroeconomic headwinds.
For a genuine broadening to take hold, consistent economic growth is vital — especially for cyclical sectors like materials, industrials, and financials that depend on rising demand and business investment.
“Better growth is going to be the trigger for a more sustainable broadening out and participation,” said Garrett Melson, portfolio strategist at Natixis Investment Managers.
For now, Wall Street appears caught between two forces — the gravitational pull of the tech titans and the slow but steady rise of broader market optimism. Which wins out may depend less on earnings calls or P/E ratios and more on whether the U.S. economy can continue threading the needle between inflation, tariffs, and global uncertainty.
