The first three quarters of 2025 have delivered remarkable growth in U.S. equity markets. The S&P 500 Index, which represents the 500 largest U.S. companies, achieved a total return of 8.1% in Q3 and is up 14.8% year-to-date, reaching 28 new all-time highs through September. While these numbers underscore investor optimism and economic resilience, they also highlight the importance of understanding where market strength is coming from and how to stay balanced as the year draws to a close.
The Story Behind the Numbers
Much of 2025’s performance has been driven by a handful of dominant companies. The “Magnificent 7”—Apple, NVIDIA, Microsoft, Amazon, Tesla, Alphabet, and Meta—make up more than 32% of the S&P 500’s total weight and have contributed nearly 42% of the Index’s total return this year. If Broadcom replaces Tesla in that group, the new “Magnificent 7” would account for more than 55% of the Index’s gains through Q3.
This level of concentration is unusual, though not unprecedented. In 2023 and 2024, fewer than 30% of companies outperformed the Index, making those years among the most narrowly led markets in nearly three decades. Encouragingly, that number has expanded to 37% in 2025, suggesting broader participation may be returning.
(Source: “S&P 500 Index Performance Check: Q3 2025,” First Trust Portfolios, October 9, 2025.)
Beyond the Headlines: The Role of Earnings
While performance has been strong, earnings growth and price appreciation have not always moved in tandem. Some companies, like Amazon, have contributed significantly to earnings growth without driving as much of the Index’s price gain, while others—such as NVIDIA—have done the reverse. This underscores the need for disciplined analysis rather than chasing headline performance.
How Investors Can Approach Q4
As we enter the final quarter of 2025, the takeaway for investors is clear: market strength is promising, but diversification remains essential. Concentrated returns may create opportunities, but they also bring increased volatility and risk if leadership shifts.
Now is a good time to:
- Revisit portfolio allocations to ensure alignment with long-term goals
- Consider rebalancing to manage exposure to dominant sectors or companies
- Evaluate unrealized gains and tax implications before year-end
- Review income planning strategies in light of strong equity growth
Even in robust markets, maintaining balance and discipline helps ensure your portfolio continues to serve your broader financial objectives.
Our Perspective: Planning Beyond the Quarter
At CF Financial, we view each market phase as part of a larger journey. Short-term results matter, but true progress is measured through alignment between your investments, goals, and long-term plan. Whether markets broaden or leadership narrows further, our role remains the same: helping you make informed, confident decisions that support your financial well-being in every season.
CF Financial is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.