Hi, everyone. I am Liz Ann Sonders, and this is the August edition of my monthly Market Snapshot series. In this short video, I'll share some thoughts on market performance so far this year, but do it in the context of market breadth, we'll look at sector performance, and also look at earnings, and what, or maybe who, has been driving performance this year.
[High/low chart for "Middling breadth suggested under-surface consolidation" for % of stocks above 50-day moving average is displayed]
So 2025 began with a surge into fresh S&P 500 highs by February 19th. Then, of course, lurched into a correction, or bear market, depending on the index, essentially bottoming on the close of April 8th, before ultimately grinding back to and through the old peaks in early summer. Now, that three-act arc—euphoria, air pocket, repair—left a clear fingerprint on market internals. As of mid-August, when I'm taping this, a slight majority of S&P 500 members are now back above their short-term trend lines.
[High/low chart for % of stocks above 200-day moving average is displayed]
There has also been a very recent pop in breadth relative to longer-term trend lines, in this case, the 200-day moving average, with smaller cap stocks getting a little bit more love in the latest rally, although the lagging performance of the small cap Russell 2000 Index highlights that risk appetite outside of the mega-cap tech and tech-related areas is still somewhat tentative.
[Table for "Still-low percentage of stocks beating index" for % of S&P 500 members outperforming S&P 500 Index over the past 1m, 2m, 3m, 4m, 5m, 6m, 1y is displayed]
Another way to judge whether the rally is healthy is to look at what percentage of S&P 500 constituents are actually beating the index itself. The share of stocks outperforming the index sank to historically low levels during various concentration peaks in 2003 and 2004, and then started to improve earlier this year, but not yet decisively flipping to what we might define as broad dominance. Now, historically, low outperformance by S&P constituents can be a useful baseline for understanding why rallies at times can sometimes feel less inspiring, certainly to investors that might be utilizing active strategies over passive strategies.
[High/low chart for "Stealthy breadth surge for Utilities (AI play?)" for % of S&P 500 members above 50-day moving average is displayed]
Now, if we drill into sectors, the composition of breadth helps explain this year's rhythm. Sector-level analysis shown a rotation pattern in which defensive sectors periodically led during the mid-February to mid-April downdraft and early repair, while growth-sensitive sectors have reasserted leadership into this summer's full rebound.
[High/low chart for % of S&P 500 members above 200-day moving average is displayed]
Interestingly, although the technology and communication services sectors top the year-to-date leaderboard performance-wise, participation within those sectors does not. Interestingly, it's actually the utility sector with the strongest breadth, meaning it has the highest share of stocks moving somewhat in tandem and above moving averages.
[Table for "What a different a time period makes" for S&P 500 sector performance from 12/31/24-8/13/25 is displayed]
Let's take a deeper dive into performance so far this year, covering three distinct time periods. First up year-to-date, which shows a clear leadership tilt toward mega-cap growth, cyclicality, technology and communication services, those have been central to index returns, but also notable gains by industrials and utilities.
[Table for "What a different a time period makes" for S&P 500 sector performance from 2/19/25-4/8/25 is displayed]
Now, from the initial all-time high in mid-February through the closing low in early April, the largest hits were taken by many of these growth stocks, in fact, by the what I often call the growth trio of sectors, so technology, communication services, consumer discretionary, and in the case of tech and communication services, they were the largest drags on performance.
[Table for "What a different a time period makes" for S&P 500 sector performance from 4/8/25-8/13/25 is displayed]
But what a difference since the April 8th closing low, the rebound has favored mega-cap growth and pretty much anything AI-linked. Now, taking the year so far in the aggregate, while year-to-date leadership still tilts growth in mega-cap, the correction window rewarded defensives, and the post-April rebound leg blended renewed growth leadership with some broadening, a little bit of broadening beneath the surface more recently.
[High/low chart for "Big improvement 2Q earnings relative to expectations" for S&P 500 2Q25 expected y/y earnings by sector as of 8/8/25 is displayed]
All of this sits atop a fundamentally solid earnings backdrop. Although reporting season for the second quarter is not officially in the books, more than 90% of S&P 500 companies have reported, and more than 80% of the companies having reported have beaten consensus estimates. For the overall S&P 500, the blended growth rate, which includes estimates for companies that have not yet reported, is 13%.
[High/low chart for S&P 500 2Q25 expected y/y earnings by sector as of 7/1/25 is displayed]
That's more than double what expectations were in early July before reporting season began. Now, the largest improvement in earnings growth relative to initial estimates has been afforded to communication services, with tech swing fairly large as well. In fact, it's only two sectors, the REITs, which are the real estate investment trusts, and utilities, that saw deterioration, and not much, in growth relative to initial expectation.
[High/low chart for "Retail traders' fingerprints all over market's rally off lows" for performance for various index baskets from 12/31/24-8/13/25 is displayed]
There's another interesting way to slice and dice performance this year, and that is via thematic baskets. Rather than broad-based participation, this year's leadership has been heavily skewed toward more speculative, high volatility, lower quality segments of the market, including baskets like nonprofitable tech, retail favorites, meme stocks… yes, they're back… while classically defensive areas have had duller performance.
[High/low chart for performance for various index baskets from 2/19/25-4/8/25 is displayed]
It's again essential to segment the year into the correction phase and into the recovery phase, and clearly these higher volatility, lower quality themes were hammered during the mid-February to early April period, but of course, their rebounds have been extraordinary.
[High/low chart for performance for various index baskets from 4/8/25-8/13/25 is displayed]
Our take and advice around this… I'm going to use a little bit of trader lingo here… is to fade the lower quality winners, and continue to lean into higher quality factors when it comes to picking stocks.
[List of "Takeaways" is displayed]
Here are the takeaways from this month's visuals. I always end this way, but I want to conclude more broadly. The path for the market and sector breadth, as well as sector performance, I think, continues to hinge on two pivots, policy and profits. Now, policy-wise, of course, we've got the cadence of tariffs and the Fed's reaction function to its dual mandate of inflation and the labor market, and I think those things should continue to drive leadership shifts in the short-term. For breadth to recover further, it's also likely that earnings power must migrate down cap, and across both cyclical and non-cyclical sectors. In the meantime, 2025's market remains a story of sturdy top line index performance, improving but still patchy participation under the surface, but a fundamentals backdrop that's been better than feared, although not universally strong.
That's the summary. Thanks for tuning in as always.
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