We’ve become accustomed to major outperformance for the US economy and stock market , yet 2025 has seen a narrative shift.
Firstly, US economic data has, on balance, been surprising to the downside, which is adding to anxiety about a US economic slowdown. And secondly, the main US stock market is underperforming relative to the some of its global peers.
Volatility has undoubtedly picked up for US stocks this year, which is a sign that the prevailing drivers of US stocks are shifting.
Back in January, news that Chinese AI company DeepSeek was able to build a challenger model to ChatGPT on a much smaller budget and with fewer NVIDIA chips than people thought was possible.
Suddenly, a relatively small Chinese startup had threatened the dominance of the US tech sector. That knocked sentiment towards US tech stocks, and the most revered US AI stock, Nvidia, in particular.
This article isn’t personal advice. Remember, investments and any income from them can rise and fall in value, so you could get back less than you invest. Past performance isn’t a guide to the future. If you’re not sure if an investment’s right for you, ask for financial advice.
Why has the US stock market fallen?
A crisis of investor confidence in US tech stocks is one of the reasons why the S&P 500 has stalled and lost around $3.5trn of its value so far this year.
This sounds like a huge number, however, it needs to be put into context.
Firstly, the index is still worth over $50trn, and it dwarves the FTSE 100, which is valued at $2.8trn, and the German Dax index, which is valued at just over $2trn.
Secondly, the decline in the US index’s market cap is down to a few large stocks. For example, NVIDIA has lost $800bn in market capitalisation since January. Tesla has seen its market valuation half since peaking in December, and it’s lost more than $600bn in value.
This highlights how the US’ largest tech stocks have dominated the US stock market, both on the upside, and now on the downside.
But there could be a silver lining.
When US tech stocks, like NVIDIA, were rising high, concerns grew about just how dominant these stocks were on the overall performance of the market.
The biggest tech stocks, known as the ‘Magnificent 7’, reached a peak valuation of $17trn in December 2024, which was the equivalent of approximately 30% of the entire US blue chip index.
2025’s re-set for US stocks has seen a recalibration of the US index. As the Magnificent 7 has lost a combined $2.3trn of value, it’s given other sectors a chance to play catch up.
Bricks and mortar companies play catch up
The best-performing US equity market sectors so far in 2025 include healthcare, transport and gold, which were unloved sectors of the index not that long ago.
Now they’re the darlings of Wall Street.
Likewise, one of the best-performing stocks in the US index so far this year is CVS health, which is a chain of pharmacies, with a huge bricks and mortar presence across the US. Although CVS health has exposure to AI and technology through the services that it provides, it’s a consumer-facing company, very different to the likes of NVIDIA.
Even more interesting is that CVS health is dominating the main US stock index without being a trillion-dollar company. Its valuation is a ‘mere’ $82bn. It’s seen a $25bn jump in its market capitalisation since December.
It’s worth noting that CVS Health has had a tough time of it in recent years – back in 2022, the market cap was $140bn. This is a sign that investors might be attracted to some of the unloved smaller stocks in the S&P 500 as we move through 2025.
This is representative of the shift in leadership of the S&P 500 so far this year – the stars of the show are smaller, non-AI related, and might not even be recognisable global names.
So, while the main US index might be weighed down by the fortunes of a few tech companies, there are pockets of the index that are thriving.
NVIDIA versus the US stock market
Should you still consider investing in the US stock market?
The simple answer is yes.
There are undoubtedly challenges for US stocks this year, including fears of an economic downturn and economic policy uncertainty as Trump’s new agenda is implemented.
However, the US stock market still makes up a giant part of the global stock market and the fundamentals, including tech, remain intact. strong.
For example, on aggregate, the main US blue chip index saw a 17% increase in earnings growth in the fourth quarter of 2024, the highest level in three years. Close to 80% of companies exceeded earnings estimates, and the financial sector was the top-performing sector.
Earnings were good last quarter which is good news for US stocks as it means they started 2025 in a strong position.
However, it’s not all going to be plain sailing.
There is a new level of uncertainty that’s weighing on sentiment to US stocks.
Nearly half of all companies listed on the main US blue-chip index cited concerns about tariffs on their earnings calls, and 72 issued negative forward guidance, which is above the five-year average. Tariff concerns are clearly real for corporate America.
On the other hand though, if tech stocks can weather the tariff-related storms, then we could see the US stock market’s fortunes pick up as we move through 2025.
Kathleen Brooks is Founder of Minerva Analysis, a market analysis company. Hargreaves Lansdown may not share the views of the author.
The US makes up over half of the global stock market. It’s the world’s biggest economy and home to some of the globe’s largest companies.
The HL US Fund provides a way to invest in this powerhouse where the hard work is done for you. HL’s experts have handpicked an external team of fund managers, who pick US stocks they believe offer the best potential for long-term performance.
The HL US Fund is managed by Hargreaves Lansdown Fund Managers Ltd., part of the Hargreaves Lansdown Group.