Tech stocks are flying high, energy's in the dumps, and size bias is skewing everything we think we know about the market. Welcome to mid-July 2025, folks, where the S&P sector performance tells a story that's becoming painfully familiar.
I've been tracking these sector rotations for nearly a decade now, and the pattern developing in the market has all the subtlety of a sledgehammer. Big Tech and Communication Services companies continue their relentless march upward while Energy stocks... well, they're having a rough go of it. Again.
The Big Keep Getting Bigger
The technology sector sits pretty in the upper right quadrant of this week's returns chart. No surprise there. With positive returns over both 5-day and 1-month periods, tech stocks are doing what they've done for so long that younger investors probably think it's just the natural order of things.
But here's the thing about market-cap weighted returns (and this is crucial): they're fundamentally distorted. Think of it as a high school popularity contest where the cool kids get ten votes each while everyone else gets one. Is that fair? Of course not. Is that how our market works? You bet it is.
When Apple or Microsoft has a good day, the entire index practically throws a party. I call this the "whale in the swimming pool effect" — and trust me, we're all getting splashed.
Healthcare and Financials: A Study in Contrasts
Have you noticed the interesting divergence between Healthcare and Financial sectors lately? Both showed decent gains in the 5-day window, but zoom out to a month and they're telling different stories.
Healthcare has maintained its upward trajectory (defensive characteristics still matter in uncertain times), while Financials seem to be catching their breath after a pretty solid run earlier in the quarter.
I spoke with three portfolio managers last week who all pointed to the Fed's recent commentary about potentially pausing rate adjustments. "Financials hate uncertainty even more than they hate low rates," one told me, requesting anonymity because, well, that's what sources always seem to want these days.
Energy's Endless Winter
Look, I don't want to pile on, but Energy stocks continue to be the sector equivalent of that friend who shows up to dinner complaining about everything. Negative returns across both timeframes tell a pretty grim story.
There's this concept I've developed after watching cyclical sectors for years — I call it the "investor patience threshold." It's basically the point at which even the most steadfast value investors throw up their hands and say, "Enough already!"
Energy might be approaching that threshold, which, historically speaking, has often been a contrarian buy signal. Then again, I've been muttering that same line for about eighteen months now. So... grain of salt and all that.
Consumer Discretionary's Jekyll and Hyde Act
The Consumer Discretionary sector is giving us a real split personality right now — positive short-term returns but still lagging over the month. This makes perfect sense if you think about the incredible diversity within the sector (luxury retailers sitting alongside fast-food chains? C'mon).
What's particularly interesting (having tracked consumer spending patterns since before the pandemic) is how the weighted returns suggest the bigger players have found solid footing while smaller companies continue struggling with the reality that the average American family is stretching each paycheck like it's made of rubber.
The Matthew Effect in Action
There's something fundamentally skewed about market-cap weighted returns that we don't talk about enough. "To those who have, more shall be given" — that's essentially what's happening with index influence.
This methodology creates what academics call the Matthew Effect, named after the biblical passage. In plain English: the big get bigger, not just in actual size but in their ability to move markets.
It's worth asking ourselves (though we rarely do): How different would our market narrative be if every company's performance carried equal weight in the indices? The current approach reminds me of trying to calculate the average height in a room that includes both kindergartners and NBA players. Technically accurate? Sure. Useful? That's debatable.
What's Next?
As earnings season ramps up, these performance patterns face their moment of truth. The market has priced Tech and Communication Services for nothing short of brilliance — anything less might trigger the kind of volatility that reminds investors that gravity, eventually, applies to everything.
Meanwhile, those underperforming sectors... are they value traps or legitimate opportunities? That largely depends on your time horizon and how much red ink you can stomach before panic-selling at precisely the wrong moment.
The energy sector, in particular, seems priced for some kind of apocalyptic scenario that may never materialize. Or maybe it will! (This is why I don't manage other people's money.)
One thing I've learned covering markets through multiple cycles: the greater the performance divergence between sectors, the stronger the potential snapback when narratives shift. Which they always do — typically right after you've finally convinced yourself they never will.
