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Is Struggling Tech Bringing Down the Market?

March 25, 2025

Time to Read: 2 minutes

For over two years, seven of the top technology stocks known as the Magnificent 7 significantly outperformed the broad market. In fact, this narrow market leadership was a key driver of the index’s rally from the October 2022 low through year-end 2024.

This year has been a different story. The Magnificent 7, which act as a proxy for the technology sector, are down 15% year to date, while the rest of the market is flat. Concerns that the technology sector is overvalued and trading at stretched multiples have been a large driver of the underperformance. However, given the sharp runup of these stocks, we view this as a healthy pullback.

While we expect market volatility to continue until policy uncertainty around the administration’s tariff strategy subsides, we maintain our constructive outlook on U.S. large cap stocks and will be watching on April 2 for more clarity on tariffs. We view the rest of the market’s relative resilience in the face of choppy index performance as a constructive sign and a reminder of the importance of diversification.

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Earnings Improvement Is Broadening

Earnings growth is broadening beyond big tech stocks, which is typically a positive sign for continued equity gains.

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Risk On?

The S&P 500 is trading at record highs, which some investors didn’t see coming after the tariff-fueled drop in April. What may come as a bigger surprise, however, is the rally is broadening beyond big technology companies. Let’s examine different measures that prove this point.

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Optimism Grows Among Small Businesses

Small businesses are becoming more optimistic, a positive indication at a time when economists are debating whether growth will slow. We view this confidence as a positive signal for future growth.

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Is Big Tech Overvalued?

It’s true that the S&P 500 currently exhibits high valuations, with the technology sector alone comprising over 40% of its market capitalization and driving concerns about valuations. Are those high multiples justified?

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