The 2025 Stock Market Rotation: Diversification Matters More Than Ever
As we move through the first quarter of 2025, a significant shift is occurring in the stock market that investors should be aware of. After years of dominance by growth stocks, particularly in the technology sector, we’re witnessing a rotation towards other areas of the market, including value stocks and international equities. This change presents both challenges and opportunities, highlighting the critical importance of portfolio diversification.
Year-to-date, the Nasdaq (growth, Big Tech) is down more than 6%, while value stocks (Russell 1000 Value) are up 1.89% and international stocks (MSCI EAFE) are up a whopping 11.21%!! 📈 *as of 03/06/25
The Changing Tide: From Growth to Value
For the past few years, growth stocks, especially those in the tech sector, have been the darlings of Wall Street. The “Magnificent Seven” – Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla – along with other tech giants, drove the market to new heights. In 2024 alone, US technology stocks returned an impressive 36%. However, the tide has begun to turn in 2025.
Sectors such as financial services, energy, and industrials – the kinds of economically sensitive or value sectors that populate the Dow – have outperformed high-growth technology names. This marked a change of pace from much of 2023 and early 2024, when tech stocks were often leading the charge.
This recent rotation didn’t emerge overnight; it has been building as the market’s breadth improved over the past year. In 2023, a handful of mega-cap tech stocks drove a disproportionate share of market gains. By contrast, late 2024 saw broader participation in the rally. A mid-year sector rotation helped broaden the advance, cutting the contribution of the top seven S&P 500 stocks (the “Magnificent 7”) from about 60% of the index’s gain in the first half of 2024 to just 23% in the second half.
In other words, the market’s leadership expanded beyond the familiar FAANG-style names, allowing other sectors to catch up. The result was an impressive 2024 return for the S&P 500 with many sectors contributing – all 11 S&P sectors ended 2024 in positive territory, though only four beat the index. Notably, some of the best performers were outside tech: Communication Services surged +34.7% and Financials +30.6% in 2024, while even defensive Utilities enjoyed a +23.3% rebound.
International Stocks Outperform
But it’s not just about domestic value stocks. International markets are also having their moment in the sun. The MSCI EAFE (developed international stock index) is up an impressive 11.21% this year, significantly outperforming the US Market Index. UK stocks, despite being concentrated in “old economy” sectors like banks, energy, and pharmaceuticals, are also performing very well. I’ve written about the more attractive valuations in international stocks in recent blog articles. It has appeared for some time that international stocks are due for a strong run against US stocks… we’ll see how long it lasts.
Economic Factors Influencing Rotation
Macro-economic conditions have been a major catalyst for the rotations underway. One of the biggest drivers is the outlook for interest rates and inflation. When investors expect interest rates to fall, growth stocks tend to benefit; when rates are expected to rise or stay high, value and defensive stocks often take the lead. We saw this dynamic play out vividly over the past year.
Early in 2024, equities surged on hopes that the Federal Reserve would start cutting rates significantly and that the economy would remain robust. This optimism – coupled with excitement over new technologies like artificial intelligence – fueled a powerful rally in tech and growth stocks.
However, by mid-2024 the narrative shifted. Economic data came in hotter and more resilient than anticipated, which dampened expectations of imminent Fed rate cuts. As the market realized that rates might stay higher for longer, the previous trade reversed: interest-sensitive cyclical stocks stumbled, and defensive sectors such as consumer staples and healthcare assumed leadership. In short, when borrowing costs seemed likely to remain elevated, investors rotated toward companies seen as steadier in a high-rate environment (and took some profits from the earlier high-flyers).
Fast forward to today, and we find inflation has cooled considerably from the peaks of 2022. As of December 2024, U.S. headline CPI was running about 2.9% year-over-year, with core inflation (ex-food and energy) at 3.2% – both numbers have come down to their lowest levels in over two years.
This gradual easing of inflationary pressure has allowed the Fed to pause its rate hikes and even deliver a “no-surprise” quarter-point rate cut late last year. That policy pivot helped improve sentiment going into 2025. However, interest rates remain historically high. The benchmark 10-year U.S. Treasury yield still hovers around 4.5 – 4.6%, a level not seen consistently since before the 2008 financial crisis. Such elevated yields act as a gravity force on equity valuations – particularly for high-growth stocks whose earnings are far in the future.
With bonds offering relatively attractive returns, some investors have reallocated into fixed income or sought stocks with more immediate cash flows (dividend payers, value stocks) that look appealing in a 4%+ yield world. In essence, the premium on “long duration” growth assets has come down, encouraging a rotation into sectors that had been overlooked when rates were near zero.
Another economic factor at play is the trajectory of growth. In recent months, there are signs that the economy’s momentum is cooling. The Atlanta Fed’s GDPNow model, which provides a running estimate of quarterly GDP growth, turned negative for Q1 2025 – a stark change from the robust growth seen in mid-2024. This certainly doesn’t guarantee a recession, but it does indicate that growth expectations have weakened.
Slower growth prospects tend to make investors more cautious and tilt preferences toward defensive, recession-resistant sectors (utilities, healthcare, consumer staples) and away from highly cyclical industries. Indeed, part of the late-February defensive shift in the market can be attributed to rising recession concerns. At the same time, the labor market remains fairly solid – U.S. unemployment is about 4.1%, near historic lows, and job creation has been running above expectations.
A strong jobs backdrop bolsters consumer spending and corporate earnings, which in turn supports cyclicals. This mix of signals (cooling growth, but still-healthy employment) has made the market’s rotations more nuanced. Investors are essentially calibrating their portfolios to balance these forces: If growth slows markedly, they want to be in safe havens, but if the economy manages a soft landing, they don’t want to miss out on beaten-down cyclicals that could rebound. Economic data surprises – on inflation, rates, or growth – thus continue to spur mini-rotations as the market continually reassesses the outlook.
Investor Sentiment and Outlook
Recent rotations also reflect a shift in investor sentiment and a recalibration of expectations. One encouraging sign has been the marked improvement in market breadth – essentially, more stocks are joining the advance. Over the trailing year, only about 22% of S&P 500 companies outperformed the index (a very narrow market); but in the past month, that figure jumped to roughly 50%.
This means half of the index’s constituents beat the index return, indicating a far more broad-based rally. Such broadening typically points to rising confidence among investors: they are no longer piling solely into the same handful of “sure thing” names, but are willing to spread bets across different industries. It also speaks to the idea that valuations had become stretched in the winners and more attractive in the laggards, prompting investors to rotate into those undervalued opportunities.
The improved breadth suggests the stock market’s foundation is healthier than when only a few giants were carrying all the weight. For investors, this is a double-edged sword: on one hand, a wider range of stocks doing well is positive and can signal a more durable rally; on the other hand, it means old leaders might not carry the day as reliably, requiring more discrimination.
Looking ahead, the overall investor outlook is cautious but not bearish. After two years of outsized equity returns, much of the “easy” money has been made, and valuations in certain segments (notably U.S. large-cap growth) are elevated. As one fund manager put it, a lot of the good news is already priced in to many stocks.
Indeed, with the S&P 500’s dramatic run since the 2020 lows, investors are aware that future gains may be harder-won. This recognition has instilled a degree of prudence; we see that in the rotations into defensive sectors and value plays whenever bad news crops up. At the same time, there is still a current of optimism that the bull market can continue – just with different leadership.
Corporate earnings have been coming in better than expected in many cases, and as inflation retreats there’s hope for margin relief for companies. Investors remain on guard, knowing new uncertainties could emerge (for example, if economic data deteriorates more than forecast, or if a geopolitical flare-up occurs), but there is no sense of panic. Instead, the sentiment could be described as “optimistic yet balanced.”
Portfolio managers are neither chasing every rally with abandon nor fleeing to cash at the first sign of trouble; rather, they are rotating exposures to where they see the best relative value.
Many market strategists foresee the rotation theme continuing through 2025. In fact, some argue that we are entering a phase where value stocks and previously underperforming sectors may take on a bigger leadership role. BlackRock’s strategists, for instance, recently highlighted a “compelling case for large-cap value stocks” going forward.
The rationale is that as the economic cycle matures, companies with strong fundamentals, stable earnings, and reasonable valuations could outshine the ultra-expensive growth names that dominated when interest rates were near zero. We have already seen hints of this with the neck-and-neck performance of value vs. growth in late 2024.
Additionally, if bond yields remain high or economic growth moderates, investors may continue to favor equity sectors that offer quality and stability (traits often found in value and dividend-paying stocks). None of this means that growth stocks are “done” – far from it. Tech and other growth areas still have secular trends (like cloud computing, AI, etc.) powering them. But it does suggest a more balanced market, where leadership can alternate. The consensus outlook among many analysts is for choppy, range-bound markets with swift leadership changes.
Why This Stock Market Rotation Matters
You might be wondering why this rotation is significant. After all, market trends come and go, right? While that’s true, this shift underscores a fundamental principle of investing: the importance of diversification.
When a small group of stocks or a single sector dominates market returns for an extended period, it’s easy to fall into the trap of concentration. Many investors, seeing the stellar performance of tech stocks, may have overweighted their portfolios in this sector. But as we’re seeing now, no trend lasts forever. Those who maintained a diversified portfolio are likely weathering this shift much more comfortably.
The Virtues of Diversification
Diversification is often described as the only free lunch in investing, and for good reason. By spreading your investments across different asset classes, sectors, and geographical regions, you can potentially reduce risk without sacrificing returns. Let’s break down why diversification is so crucial:
1. Risk Reduction
When you diversify, you’re essentially not putting all your eggs in one basket. If one part of your portfolio underperforms, other areas may compensate, helping to smooth out your overall returns. This is exactly what we’re seeing play out in the current market rotation.
2. Exposure to Growth Opportunities
Different sectors and regions experience growth at different times. By diversifying globally, you position your portfolio to capture growth wherever it occurs. For instance, while US tech stocks are currently struggling, emerging markets and value stocks are thriving.
3. Protection Against Unforeseen Events
Economic downturns, geopolitical events, or sector-specific challenges can significantly impact certain stocks or markets. A diversified portfolio helps insulate you from the full brunt of these events.
4. Balancing Risk and Return
Diversification allows you to balance higher-risk, higher-potential-return investments with more stable ones. This balance can help you achieve your financial goals while managing risk appropriately.
The Global Perspective: Why It Matters
In today’s interconnected world, limiting your investments to your home country could mean missing out on a world of opportunities. Here’s why a global perspective is crucial:
Accessing the World’s Best Companies
While the US market is home to many excellent companies, some of the world’s most innovative and successful businesses are listed on foreign exchanges. By investing globally, you gain access to industry leaders across various sectors that may not be represented in your domestic market.
Sector Diversification
Different countries often have different sector strengths. For instance, while the US is strong in technology, other countries might lead in areas like manufacturing, healthcare, or natural resources. Global investing allows you to tap into these diverse strengths.
Economic Cycle Diversification
Economies around the world are often at different stages of their economic cycles. When one country is experiencing a downturn, another might be in a growth phase. Global diversification can help smooth out the impact of these economic cycles on your portfolio.
Currency Diversification
Investing internationally also provides exposure to different currencies. This can act as a hedge against fluctuations in your home currency and potentially enhance returns when translated back to your base currency.
Looking Ahead: Will the Rotation Last?
As with any market trend, the million-dollar question is: Will this rotation last? Opinions among market strategists are divided. Some, like Adam Turnquist from LPL Financial, are skeptical, viewing this as potentially another “head fake” before a return to growth stock dominance.
Others, however, see signs that this shift could be more durable. Michael Arone from State Street Global Advisors points to the narrowing earnings gap between the Magnificent Seven and the rest of the market as evidence of a broader, healthier market.
Regardless of how long this particular rotation lasts, it serves as a powerful reminder of the unpredictable nature of markets and the importance of maintaining a diversified portfolio.
Conclusion
The current market rotation from growth to value and international stocks serves as a timely reminder of the cyclical nature of markets and the enduring importance of diversification. While it’s exciting to ride the wave of a hot sector or stock, history has shown time and again that spreading your investments across various areas is the most reliable path to long-term financial success.
As we navigate through 2025 and beyond, maintaining a well-diversified portfolio with exposure to different sectors, styles, and global markets will be more crucial than ever. By doing so, you’ll be better positioned to weather market rotations, capture growth opportunities wherever they arise, and ultimately achieve your financial goals.
Remember, in the world of investing, change is the only constant. By embracing diversification and maintaining a global perspective, you can turn this change from a threat into an opportunity. Here’s to your financial success in 2025 and beyond!
Sources:
https://www.investingdaily.com/134421/market-review-the-leaders-and-laggards-of-2024/#
https://www.nasdaq.com/articles/these-were-5-top-performing-stocks-nasdaq-100-january-2025
https://www.morningstar.co.uk/uk/news/261532/a-stock-market-rotation-is-underway-will-it-last–.aspx
https://www.investing.com/analysis/can-value-stocks-rebound-in-2025-200655828
https://www.blackrock.com/us/individual/insights/taking-stock-quarterly-outlook#
https://www.livemint.com/news/us-news/united-states-key-inflation-rises-2-9-in-december-core-cpi-at-32-11736951526115.html
https://ccmg.com/benchmark-review-monthly-recap-january-2025/#
https://www.schwab.com/learn/story/not-so-magnificent-seven
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
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The 2025 Stock Market Rotation: What it Means for Investors
The 2025 Stock Market Rotation: Diversification Matters More Than Ever
As we move through the first quarter of 2025, a significant shift is occurring in the stock market that investors should be aware of. After years of dominance by growth stocks, particularly in the technology sector, we’re witnessing a rotation towards other areas of the market, including value stocks and international equities. This change presents both challenges and opportunities, highlighting the critical importance of portfolio diversification.
Year-to-date, the Nasdaq (growth, Big Tech) is down more than 6%, while value stocks (Russell 1000 Value) are up 1.89% and international stocks (MSCI EAFE) are up a whopping 11.21%!! 📈 *as of 03/06/25
The Changing Tide: From Growth to Value
For the past few years, growth stocks, especially those in the tech sector, have been the darlings of Wall Street. The “Magnificent Seven” – Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla – along with other tech giants, drove the market to new heights. In 2024 alone, US technology stocks returned an impressive 36%. However, the tide has begun to turn in 2025.
Sectors such as financial services, energy, and industrials – the kinds of economically sensitive or value sectors that populate the Dow – have outperformed high-growth technology names. This marked a change of pace from much of 2023 and early 2024, when tech stocks were often leading the charge.
This recent rotation didn’t emerge overnight; it has been building as the market’s breadth improved over the past year. In 2023, a handful of mega-cap tech stocks drove a disproportionate share of market gains. By contrast, late 2024 saw broader participation in the rally. A mid-year sector rotation helped broaden the advance, cutting the contribution of the top seven S&P 500 stocks (the “Magnificent 7”) from about 60% of the index’s gain in the first half of 2024 to just 23% in the second half.
In other words, the market’s leadership expanded beyond the familiar FAANG-style names, allowing other sectors to catch up. The result was an impressive 2024 return for the S&P 500 with many sectors contributing – all 11 S&P sectors ended 2024 in positive territory, though only four beat the index. Notably, some of the best performers were outside tech: Communication Services surged +34.7% and Financials +30.6% in 2024, while even defensive Utilities enjoyed a +23.3% rebound.
International Stocks Outperform
But it’s not just about domestic value stocks. International markets are also having their moment in the sun. The MSCI EAFE (developed international stock index) is up an impressive 11.21% this year, significantly outperforming the US Market Index. UK stocks, despite being concentrated in “old economy” sectors like banks, energy, and pharmaceuticals, are also performing very well. I’ve written about the more attractive valuations in international stocks in recent blog articles. It has appeared for some time that international stocks are due for a strong run against US stocks… we’ll see how long it lasts.
Economic Factors Influencing Rotation
Macro-economic conditions have been a major catalyst for the rotations underway. One of the biggest drivers is the outlook for interest rates and inflation. When investors expect interest rates to fall, growth stocks tend to benefit; when rates are expected to rise or stay high, value and defensive stocks often take the lead. We saw this dynamic play out vividly over the past year.
Early in 2024, equities surged on hopes that the Federal Reserve would start cutting rates significantly and that the economy would remain robust. This optimism – coupled with excitement over new technologies like artificial intelligence – fueled a powerful rally in tech and growth stocks.
However, by mid-2024 the narrative shifted. Economic data came in hotter and more resilient than anticipated, which dampened expectations of imminent Fed rate cuts. As the market realized that rates might stay higher for longer, the previous trade reversed: interest-sensitive cyclical stocks stumbled, and defensive sectors such as consumer staples and healthcare assumed leadership. In short, when borrowing costs seemed likely to remain elevated, investors rotated toward companies seen as steadier in a high-rate environment (and took some profits from the earlier high-flyers).
Fast forward to today, and we find inflation has cooled considerably from the peaks of 2022. As of December 2024, U.S. headline CPI was running about 2.9% year-over-year, with core inflation (ex-food and energy) at 3.2% – both numbers have come down to their lowest levels in over two years.
This gradual easing of inflationary pressure has allowed the Fed to pause its rate hikes and even deliver a “no-surprise” quarter-point rate cut late last year. That policy pivot helped improve sentiment going into 2025. However, interest rates remain historically high. The benchmark 10-year U.S. Treasury yield still hovers around 4.5 – 4.6%, a level not seen consistently since before the 2008 financial crisis. Such elevated yields act as a gravity force on equity valuations – particularly for high-growth stocks whose earnings are far in the future.
With bonds offering relatively attractive returns, some investors have reallocated into fixed income or sought stocks with more immediate cash flows (dividend payers, value stocks) that look appealing in a 4%+ yield world. In essence, the premium on “long duration” growth assets has come down, encouraging a rotation into sectors that had been overlooked when rates were near zero.
Another economic factor at play is the trajectory of growth. In recent months, there are signs that the economy’s momentum is cooling. The Atlanta Fed’s GDPNow model, which provides a running estimate of quarterly GDP growth, turned negative for Q1 2025 – a stark change from the robust growth seen in mid-2024. This certainly doesn’t guarantee a recession, but it does indicate that growth expectations have weakened.
Slower growth prospects tend to make investors more cautious and tilt preferences toward defensive, recession-resistant sectors (utilities, healthcare, consumer staples) and away from highly cyclical industries. Indeed, part of the late-February defensive shift in the market can be attributed to rising recession concerns. At the same time, the labor market remains fairly solid – U.S. unemployment is about 4.1%, near historic lows, and job creation has been running above expectations.
A strong jobs backdrop bolsters consumer spending and corporate earnings, which in turn supports cyclicals. This mix of signals (cooling growth, but still-healthy employment) has made the market’s rotations more nuanced. Investors are essentially calibrating their portfolios to balance these forces: If growth slows markedly, they want to be in safe havens, but if the economy manages a soft landing, they don’t want to miss out on beaten-down cyclicals that could rebound. Economic data surprises – on inflation, rates, or growth – thus continue to spur mini-rotations as the market continually reassesses the outlook.
Investor Sentiment and Outlook
Recent rotations also reflect a shift in investor sentiment and a recalibration of expectations. One encouraging sign has been the marked improvement in market breadth – essentially, more stocks are joining the advance. Over the trailing year, only about 22% of S&P 500 companies outperformed the index (a very narrow market); but in the past month, that figure jumped to roughly 50%.
This means half of the index’s constituents beat the index return, indicating a far more broad-based rally. Such broadening typically points to rising confidence among investors: they are no longer piling solely into the same handful of “sure thing” names, but are willing to spread bets across different industries. It also speaks to the idea that valuations had become stretched in the winners and more attractive in the laggards, prompting investors to rotate into those undervalued opportunities.
The improved breadth suggests the stock market’s foundation is healthier than when only a few giants were carrying all the weight. For investors, this is a double-edged sword: on one hand, a wider range of stocks doing well is positive and can signal a more durable rally; on the other hand, it means old leaders might not carry the day as reliably, requiring more discrimination.
Looking ahead, the overall investor outlook is cautious but not bearish. After two years of outsized equity returns, much of the “easy” money has been made, and valuations in certain segments (notably U.S. large-cap growth) are elevated. As one fund manager put it, a lot of the good news is already priced in to many stocks.
Indeed, with the S&P 500’s dramatic run since the 2020 lows, investors are aware that future gains may be harder-won. This recognition has instilled a degree of prudence; we see that in the rotations into defensive sectors and value plays whenever bad news crops up. At the same time, there is still a current of optimism that the bull market can continue – just with different leadership.
Corporate earnings have been coming in better than expected in many cases, and as inflation retreats there’s hope for margin relief for companies. Investors remain on guard, knowing new uncertainties could emerge (for example, if economic data deteriorates more than forecast, or if a geopolitical flare-up occurs), but there is no sense of panic. Instead, the sentiment could be described as “optimistic yet balanced.”
Portfolio managers are neither chasing every rally with abandon nor fleeing to cash at the first sign of trouble; rather, they are rotating exposures to where they see the best relative value.
Many market strategists foresee the rotation theme continuing through 2025. In fact, some argue that we are entering a phase where value stocks and previously underperforming sectors may take on a bigger leadership role. BlackRock’s strategists, for instance, recently highlighted a “compelling case for large-cap value stocks” going forward.
The rationale is that as the economic cycle matures, companies with strong fundamentals, stable earnings, and reasonable valuations could outshine the ultra-expensive growth names that dominated when interest rates were near zero. We have already seen hints of this with the neck-and-neck performance of value vs. growth in late 2024.
Additionally, if bond yields remain high or economic growth moderates, investors may continue to favor equity sectors that offer quality and stability (traits often found in value and dividend-paying stocks). None of this means that growth stocks are “done” – far from it. Tech and other growth areas still have secular trends (like cloud computing, AI, etc.) powering them. But it does suggest a more balanced market, where leadership can alternate. The consensus outlook among many analysts is for choppy, range-bound markets with swift leadership changes.
Why This Stock Market Rotation Matters
You might be wondering why this rotation is significant. After all, market trends come and go, right? While that’s true, this shift underscores a fundamental principle of investing: the importance of diversification.
When a small group of stocks or a single sector dominates market returns for an extended period, it’s easy to fall into the trap of concentration. Many investors, seeing the stellar performance of tech stocks, may have overweighted their portfolios in this sector. But as we’re seeing now, no trend lasts forever. Those who maintained a diversified portfolio are likely weathering this shift much more comfortably.
The Virtues of Diversification
Diversification is often described as the only free lunch in investing, and for good reason. By spreading your investments across different asset classes, sectors, and geographical regions, you can potentially reduce risk without sacrificing returns. Let’s break down why diversification is so crucial:
1. Risk Reduction
When you diversify, you’re essentially not putting all your eggs in one basket. If one part of your portfolio underperforms, other areas may compensate, helping to smooth out your overall returns. This is exactly what we’re seeing play out in the current market rotation.
2. Exposure to Growth Opportunities
Different sectors and regions experience growth at different times. By diversifying globally, you position your portfolio to capture growth wherever it occurs. For instance, while US tech stocks are currently struggling, emerging markets and value stocks are thriving.
3. Protection Against Unforeseen Events
Economic downturns, geopolitical events, or sector-specific challenges can significantly impact certain stocks or markets. A diversified portfolio helps insulate you from the full brunt of these events.
4. Balancing Risk and Return
Diversification allows you to balance higher-risk, higher-potential-return investments with more stable ones. This balance can help you achieve your financial goals while managing risk appropriately.
The Global Perspective: Why It Matters
In today’s interconnected world, limiting your investments to your home country could mean missing out on a world of opportunities. Here’s why a global perspective is crucial:
Accessing the World’s Best Companies
While the US market is home to many excellent companies, some of the world’s most innovative and successful businesses are listed on foreign exchanges. By investing globally, you gain access to industry leaders across various sectors that may not be represented in your domestic market.
Sector Diversification
Different countries often have different sector strengths. For instance, while the US is strong in technology, other countries might lead in areas like manufacturing, healthcare, or natural resources. Global investing allows you to tap into these diverse strengths.
Economic Cycle Diversification
Economies around the world are often at different stages of their economic cycles. When one country is experiencing a downturn, another might be in a growth phase. Global diversification can help smooth out the impact of these economic cycles on your portfolio.
Currency Diversification
Investing internationally also provides exposure to different currencies. This can act as a hedge against fluctuations in your home currency and potentially enhance returns when translated back to your base currency.
Looking Ahead: Will the Rotation Last?
As with any market trend, the million-dollar question is: Will this rotation last? Opinions among market strategists are divided. Some, like Adam Turnquist from LPL Financial, are skeptical, viewing this as potentially another “head fake” before a return to growth stock dominance.
Others, however, see signs that this shift could be more durable. Michael Arone from State Street Global Advisors points to the narrowing earnings gap between the Magnificent Seven and the rest of the market as evidence of a broader, healthier market.
Regardless of how long this particular rotation lasts, it serves as a powerful reminder of the unpredictable nature of markets and the importance of maintaining a diversified portfolio.
Conclusion
The current market rotation from growth to value and international stocks serves as a timely reminder of the cyclical nature of markets and the enduring importance of diversification. While it’s exciting to ride the wave of a hot sector or stock, history has shown time and again that spreading your investments across various areas is the most reliable path to long-term financial success.
As we navigate through 2025 and beyond, maintaining a well-diversified portfolio with exposure to different sectors, styles, and global markets will be more crucial than ever. By doing so, you’ll be better positioned to weather market rotations, capture growth opportunities wherever they arise, and ultimately achieve your financial goals.
Remember, in the world of investing, change is the only constant. By embracing diversification and maintaining a global perspective, you can turn this change from a threat into an opportunity. Here’s to your financial success in 2025 and beyond!
Sources:
https://www.investingdaily.com/134421/market-review-the-leaders-and-laggards-of-2024/#
https://www.nasdaq.com/articles/these-were-5-top-performing-stocks-nasdaq-100-january-2025
https://www.morningstar.co.uk/uk/news/261532/a-stock-market-rotation-is-underway-will-it-last–.aspx
https://www.investing.com/analysis/can-value-stocks-rebound-in-2025-200655828
https://www.blackrock.com/us/individual/insights/taking-stock-quarterly-outlook#
https://www.livemint.com/news/us-news/united-states-key-inflation-rises-2-9-in-december-core-cpi-at-32-11736951526115.html
https://ccmg.com/benchmark-review-monthly-recap-january-2025/#
https://www.schwab.com/learn/story/not-so-magnificent-seven
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