Solving For 2025: Mid-Year Scorecard

Neuberger Berman's CIOs project a notable shift in market dynamics for 2025, anticipating stock performance to broaden significantly beyond the 'Magnificent 7' to the S&P 493 in the first half, contrasting 2024's concentrated leadership. Economically, while Q1 U.S. GDP experienced a decline attributed to tariff rhetoric, increased imports, and pre-tariff stockpiling, real wage growth is broadening across the U.S. and parts of Europe, suggesting underlying consumer strength despite trade-related uncertainties.

Analysis

A significant market regime shift is unfolding in 2025, according to an outlook from Neuberger Berman's CIOs. The primary theme is a market broadening, where the S&P 493 has delivered strong performance in the first half of the year, a stark contrast to 2024's market, which was entirely dominated by the 'Magnificent 7'. This rotation is occurring against a mixed economic backdrop. On one hand, tariff rhetoric and uncertainty have created tangible headwinds, contributing to a U.S. GDP decline in the first quarter driven by increased imports, decreased government spending, and business inventory stockpiling. On the other hand, a crucial positive development is the broadening of real wage growth in the U.S. and parts of Europe, suggesting underlying consumer resilience that could be fueling the performance of the wider market beyond the mega-cap leaders.

Key Decisions for Investors

• Investors should consider re-evaluating heavy portfolio concentrations in the 'Magnificent 7' and seek exposure to the broader S&P 493, which is demonstrating market leadership.
• Closely monitor the tension between negative trade policy impacts and positive real wage growth, as this dynamic appears to be a key driver of market performance and sector rotation in 2025.
• Strategies that favor equal-weight indices or active management focused on the broader market may be better positioned to capitalize on the current performance trend compared to cap-weighted approaches.