The Stock Market’s Wild 2025 Roller-Coaster Ride in Six Charts

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Bubble Concerns 

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At the very beginning of 2025, before the release of the DeepSeek chat bot ignited fears about AI valuations and increased competition from China, legendary investor Howard Marks warned that he was “on bubble watch.” The call was notable because the co-founder of Oaktree Capital Management was among the investors who correctly predicted the dot-com bust of 2000.

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More strategists have issued similar warnings since Marks published his memo on Jan. 7, as S&P 500 valuations climbed to their highest level since the pandemic. Last week, Ned Davis Research strategists said that semiconductor stocks meet the definition for an equities bubble established by professors at Harvard Business School in a 2017 research paper. 

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That said, this is hardly a consensus view. BofA Global Research strategists wrote in a note Wednesday that they “don’t yet see an AI bubble.” And Wall Street analysts are expecting income growth by S&P 500 companies to accelerate each year through 2027, according to data compiled by Jefferies. 

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Concentration Risk Rising

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The 10 largest stocks in the S&P 500 account for almost 40% on the US equities benchmark. That’s a historically high figure that’s giving investors heartburn over concentration risk.

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The increasingly concentrated market faces “reflexive risks,” particularly as the handful of dominant names become more correlated to each other, according to Dean Curnutt, founder and CEO of Macro Risk Advisors. He sees the Magnificent Seven tech giants —  Alphabet Inc., Amazon.com Inc., Apple Inc., Meta Platforms Inc., Microsoft Corp., Nvidia Corp. and Tesla Inc. — as a potential “circular acquiring squad” where “cash is simply being recycled, creating more market cap gains.” 

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“The S&P as an index is doing a very poor job of providing a diversified set of exposures,” Curnutt said. “Here you have an index that is absurd in terms of its top heaviness.”

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Actively Challenging

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About 45% of the S&P 500’s gains in 2025 came from the Magnificent Seven. While investors who own index-tracking ETFs have benefited, active fund managers who pick stocks and build diverse portfolios to mitigate concentration risk have struggled. 

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Only 22% of actively managed large-cap funds have outperformed the S&P 500 this year, the lowest proportion since 2016 and well below the average of 40%, according to BofA Global Research data.

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Fund managers have been selling tech stocks to the point where they’re the most underweight the sector in five years, contributing the underperformance of active funds, Seaport Research Partners said in October. 

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However, that is likely to change next year as the rally broadens out, said Steven DeSanctis, an analyst at Jefferies. He’s hardly alone. Goldman Sachs flow specialists said Thursday that stock pickers may “rejoice” in 2026 as equities move more independently of each other. And JPMorgan Chase & Co. strategists see investors “at the gates of the best stock-picking era we have seen in our lifetime”

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American Unexceptionalism 

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Despite the US stock market’s intense rally from its April lows, it’s still losing to international benchmarks. The S&P 500 is underperforming its global peers and the MSCI World Ex-US Index for the first time in a rising market since 2017.

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Stock gauges in Canada, the UK, Germany, Spain, Italy, Japan and Hong Kong have all outperformed the US benchmark. Strategists say this was a self-imposed punishment stemming from American policy uncertainty.

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“I think what helped international is the turmoil that was occurring in the US, combined with the decline in the value of the US dollar,” said CFRA’s Stovall. In addition, he said international markets were due for a strong year against the S&P 500 after years of underperformance. “It was just a matter of time.”

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