View from the Observation Deck

Today’s chart offers a study on the annual earnings per share (EPS) of four prominent U.S. equity indices over the 13-year period ended December 2025. Our data set includes the S&P 500, S&P 500 Equal Weight (“Equal Weight Index”), S&P Midcap 400 (“Midcap Index”), and S&P Smallcap 600 (“Smallcap Index”) Indices, with initial observations normalized to a factor of “100”.

Since 2012, the S&P 500 Index’s EPS growth has languished behind its peers.

This point is highly relevant, especially given the S&P 500 Index’s performance advantage over the time frame. Constituents in the Smallcap Index saw the lowest average annual total returns, despite the largest increase in normalized EPS over the period. Below are the average annual total returns for these indices (December 2012 – December 2025):

S&P 500 Index: 14.87%
S&P 500 Equal Weight Index: 12.45%
S&P Midcap 400 Index: 11.15%
S&P Smallcap 600 Index: 10.61%

Resurgent earnings among SMID caps hint at potential opportunity ahead.

In 2022, EPS for the Midcap and Smallcap Indices peaked at 193.81 and 90.87, respectively, before declining in 2023 and 2024 (the Midcap Index declined again in 2025). Analyst estimates call for a dramatic turnaround in 2026, with EPS estimated to surge to record levels by year’s-end. 2026 calendar year EPS estimates stood at 209.47 and 99.10 for the Midcap and Smallcap Indices, respectively, as of December 31, 2025, representing increases of 19.6% and 15.4% year-over-year. For comparison, earnings were estimated to increase by 14.9% for the S&P 500 Index and 10.4% for the Equal Weight Index as of the same date.

Persistent outperformance of the market-cap weighted S&P 500 Index would be unusual from a historical standpoint. 

The leading indices from December 2000 to December 2025 (see below) are nearly the inverse of those above, with the S&P 500 Index coming in last while MID caps took the lead. Average annual returns over the period were as follows:

S&P 500 Index: 8.81%
S&P 500 Equal Weight Index: 8.95%
S&P Midcap 400 Index: 9.25%
S&P Smallcap 600 Index: 9.23%

Takeaway: We recently wrote about the declining share of SMID cap stocks within the S&P 1500 Index (click here to read our thoughts). Today’s discussion serves to build on that theme by highlighting SMID caps’ persistent EPS growth over time. Notably, the S&P 500 Index has seen the highest total return over the period in today’s chart, despite having the lowest normalized EPS growth. This is not to say that the total returns we’ve seen are not warranted. Most investors are well-aware of the many ways AI could forge new paradigms across numerous industries. That said, we remain steadfast in our belief that corporate earnings drive the direction of stock prices over time. Given the combination of record high earnings estimates and unusually weak relative performance, we believe investors could benefit by broadening their equity holdings to include SMID cap equities. Several notes of caution: earnings estimates are just that – estimates which can change at a moment’s notice. Additionally, there is evidence that many small cap companies operate unprofitable businesses. Data from Capital IQ reveals that more than 20% of companies that comprise the Smallcap Index were unprofitable in 2025. While there are a myriad of ETFs and mutual funds focused on purchasing companies in these spaces, their constituent selection methodology could contribute meaningfully to returns, in our opinion.

This chart is for illustrative purposes only and not indicative of any actual investment. There can be no assurance that any of the projections cited will occur. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 1500 Index is a broad-based capitalization-weighted index of 1500 U.S. companies and is comprised of the S&P 500, S&P 400, and S&P 600 Indices. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The S&P Midcap 400 Index is a capitalization-weighted index which measures the performance of the mid-range sector of the U.S. stock market. The S&P Smallcap 600 Index is a capitalization-weighted index that measures the performance of selected U.S. stocks with a small market capitalization. The S&P 500 Equal Weight Index is the equal-weight version of the S&P 500 Index. 

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View from the Observation Deck

Today’s chart highlights changes in the share of small and mid-sized (“SMID”) companies that comprise the broader S&P 1500 Index, over time. The chart spans nearly 31 years of monthly data from January 1995 through December 2025. For reference, the S&P 1500 Index is an aggregate of the S&P 500, S&P Midcap 400, and S&P Smallcap 600 Indices. 

SMID companies’ share of the broader S&P 1500 Index has been slowly eroding, with the trend accelerating over the past decade. 

As we see it, several major catalysts lured investors from SMID cap stocks in recent years. Interest rate policy likely played a role, with higher capital costs weighing more heavily on smaller companies’ profitability. We also see geopolitical concerns and fallout from COVID lockdowns contributing to this trend, especially given perceived stability offered by larger, established companies. Finally, no recent market discussion is complete without an examination of AI and its potential to revolutionize personal and corporate efficiency.

Historically, SMID cap stocks accounted for 10.4% of the S&P 1500 Index, on average. 

In December 2025, SMID cap stocks represented just 7.4% of the S&P 1500 Index, well below the average in today’s chart. Notably, SMID’s share of the index stood at just 7.3% in October 2025, its lowest level since April 2000 when was just 6.0%.

Investors are heavily allocated to the largest stocks within the S&P 500 Index.

Data from FactSet shows that the ten largest companies in the S&P 500 Index accounted for 38.2% of the index’s weight on 1/23/26.

Stunningly, just 30% of S&P 500 Index members outperformed the index itself in 2025, up from 28% in 2024 and 27% (the lowest on record) in 2023, according to data from CapitalQ. 

Despite this narrow breadth, the S&P 500 Index has seen incredible growth recently, posting total returns of 26.26%, 25.00%, and 17.86%, respectively, in 2023, 2024, and 2025.

Comparative total returns for the S&P Midcap 400 and S&P Smallcap 600 Indices are below: 

S&P Midcap 400 Index

2023: 16.39%
2024: 13.89%
2025: 7.48%

S&P Smallcap 600 Index

2023: 15.94%
2024: 8.64%
2025: 5.99%

Takeaway: As noted above, the percentage of mid and small-sized companies that comprise the broader S&P 1500 Index has declined in recent years. Catalysts for this trend include advancements in AI, geopolitical unrest, and increasing capital costs, which influenced investors to take stakes in larger, more established companies, in our opinion. The resulting market concentration is stunning, with the share of SMID cap stocks falling to a 25-year low in October 2025. Notably, just 30% of S&P 500 Index constituents outperformed the broader index in 2025 (up from a record low of 27% in 2023). That said, while history may not repeat, it does often rhyme. Since the start of the year, investors have funneled assets into SMID cap stocks, sending the S&P Midcap 400 and S&P Smallcap 600 Indices surging by 5.54% and 6.64% (total return), respectively, year-to-date through 1/23. For comparison, the S&P 500 and Bloomberg Magnificent Seven Indices saw total returns of 1.08% and -0.47%, respectively, over the same period. Will this trend persist in the coming months? We will report back as new developments occur.

This chart is for illustrative purposes only and not indicative of any actual investment. There can be no assurance that any of the projections cited will occur. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 1500 Index is a broad-based capitalization-weighted index of 1500 U.S. companies and is comprised of the S&P 500, S&P 400, and S&P 600 Indices. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The S&P Midcap 400 Index is a capitalization-weighted index which measures the performance of the mid-range sector of the U.S. stock market. The S&P Smallcap 600 Index is a capitalization-weighted index that measures the performance of selected U.S. stocks with a small market capitalization. 

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View from the Observation Deck

Tracking the direction of worldwide semiconductor sales can provide investors with additional insight into the potential demand for tech-oriented products and the overall climate for technology stocks, in our opinion. As evidenced by continued developments in artificial intelligence (AI) and robotics, as well as the vast market for smartphones, tablets, and wearables, we continue to find creative and innovative ways to integrate semiconductors into our everyday lives.

Worldwide sales of semiconductors totaled a record $208.4 billion in Q3’25, an increase of 25.2% from $166.5 billion in Q3’24. 

Semiconductor sales continue to benefit from surging demand. Global sales totaled $69.5 billion in September 2025, an increase of 25.1% from September 2024. Demand increased the most in the Asia Pacific region, where semiconductor sales surged by 47.9% year-over-year (y-o-y) in September 2025, followed by the Americas and China, which saw y-o-y sales growth of 30.6% and 15.0%, respectively, during the month, according to the Semiconductor Industry Association.

Semiconductor sales appear to follow fluctuations in the price of technology stocks.

As observed in today’s chart, changes in semiconductor sales often mirror changes in the performance of the S&P 500 Technology Index (Technology Index). Case in point, the Technology Index surged by 28.2% in the 12-month period ended in September 2025. As noted above, quarterly semiconductor sales increased by 25.2% y-o-y in Q3’25.

The Technology Index increased by 24.0% (total return) in 2025, ranking the sector second out of the eleven sectors that comprise the broader S&P 500 Index over the time frame.

For comparison, the Technology Index was the second-best performer in 2024 as well, surging by 36.6% (total return).

Takeaway: The Technology Index had a dismal start to 2025, declining by 12.7% (total return) in the first quarter alone. The only sector to underperform it was the S&P 500 Consumer Discretionary Index, which shed 13.8% over the same time frame. Technology stocks staged a stunning turnaround beginning in Q2’25, posting a total return of 42.0% through year’s end. As revealed in today’s chart, it appears the correlation between sales and total return performance continues to hold, for now. As we see it, expectations regarding AI’s capacity to deliver unprecedented efficiency gains will likely drive continued technology investment over the near-term. On 1/16/26, data from Bloomberg showed technology sector earnings are estimated to increase by 30.6% in 2026. Notably, the Semiconductor subsector is estimated to see astronomical earnings growth (60.4%) this year. As always, these estimates are subject to change. We will report back when we have the final quarter’s semiconductor sales data. 

This chart is for illustrative purposes only and not indicative of any actual investment. There can be no assurance that any of the projections cited will occur. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Information Technology Index is capitalization-weighted and comprised of S&P 500 constituents representing the technology sector. The S&P 500 Communication Services Index is capitalization-weighted and comprised of S&P 500 constituents representing the communication services sector.

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View from the Observation Deck

Investors directing capital into U.S. mutual funds and exchange traded funds (ETFs) continued to favor passive investing over active management during the 12-month period ended 12/31/25.

Passive mutual funds and ETFs reported estimated net inflows totaling $903 billion, while active funds reported estimated net outflows of $189 billion over the trailing 12-months ended 12/31/25. The top three active categories by trailing 12-month net inflows were: Taxable Bonds (+$227 billion), Nontraditional Equity (+$69 billion), and Municipal Bonds (+$39 billion). For comparison, the top three passive categories were U.S. Equity (+$358 billion), Taxable Bond (+$287 billion), and International Equity (+$140 billion).

Equity mutual funds and ETFs saw significantly lower inflows than their fixed income counterparts over the trailing 12-month period ended 12/31/25.

Combined, active and passive equities experienced inflows of $32 billion over the trailing 12-months (not in table). For comparison, the active and passive Taxable and Municipal Bond categories reported net inflows totaling $568 billion over the same time frame. The S&P 500, S&P MidCap 400, and S&P SmallCap 600 Indices posted total returns of 17.86%, 7.48%, and 5.99%, respectively, over the 12-months ended 12/31/25, according to data from Bloomberg. 

Foreign and emerging market equities had a banner year in 2025.

With respect to foreign equities, the MSCI Emerging Net Total Return and MSCI Daily Total Return Net World (ex U.S.) Indices posted total returns of 33.57% and 31.85%, respectively, in 2025. 

For comparison, the Bloomberg Global-Aggregate Bond, Bloomberg U.S. Aggregate, and Bloomberg Municipal Long Bond Indices saw total returns of 8.17%, 7.30%, and 1.95% respectively, over the period.

Takeaway: Passive mutual funds and ETFs saw combined inflows of $903 billion compared to outflows of $189 billion for active funds in 2025. U.S. Equities produced the largest disparity between active and passive flows, with active shedding $378 billion compared to inflows of $358 billion for passive funds. Combined net inflows among active and passive equity ETFs totaled just $32 billion during the year, compared to combined net inflows of $568 billion for active and passive fixed income ETFs over the same time frame. International equities had a phenomenal year in 2025, with the MSCI Net World (ex U.S.) increasing by a stunning 31.85% during the year. Investors took notice with inflows in the category increasing to their highest level since 2021.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P SmallCap 600 Index is a capitalization-weighted index that tracks U.S. companies with a small market capitalization. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI World (ex U.S.) Index is a free-float weighted index designed to measure the equity market performance of developed markets. The Bloomberg Municipal Long Bond Index cover the USD-denominated long-term tax exempt bond market, including local general obligation, revenue, insured, and prefunded bonds. The Bloomberg U.S. Aggregate Bond Index measures the investment grade, U.S. dollar-denominated, fixed rate taxable bond market. The Bloomberg Global Aggregate Bond Index measures global investment grade debt in local currency markets. 

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View from the Observation Deck

Today's blog post features the cumulative total returns of five major equity indices (three domestic and two foreign) since the start of 2000. We chose to highlight 5-year rolling total returns to smooth out intra-year volatility. This post is updated on an annual basis. Click here for last year’s version.

Since 2007, U.S. large-, mid-, and small-capitalization (cap) stocks have taken the top spot in our table. U.S. large-caps, as represented by the S&P 500 Index, have provided the best performance in eight of the last 5-year rolling periods. From our perspective, this is likely the result of continued globalization (despite tariffs) and a stronger U.S. dollar (+9.32% from 2021 – 2025).

Regarding the U.S. dollar: a strong dollar can cause a decline in returns for U.S. investors holding positions in unhedged foreign securities, while a weak dollar can have the opposite effect. From 2000-2009, the U.S. Dollar Index declined by 23.57% − a nice tailwind for foreign holdings. From 2010-2019, the same index appreciated by 23.80% − a notable headwind for foreign holdings. The U.S. Dollar Index increased by 2.01% in the current decade (2020-2025), standing at 98.32 on 12/31/25, well above its 20-year average of 90.43.

While it is no secret that U.S. companies generate a significant portion of their revenue from overseas, many investors may not be aware of just how dependent they have become on international sales. Notably, 42.1% of S&P 500 Index revenues were generated outside of the U.S. as of 12/31/25.
For additional context, the average annual total returns for each of the five equity indices in today’s table were as follows (12/31/99 – 12/31/25): S&P MidCap 400 (9.57%); S&P SmallCap 600 (9.36%); S&P 500 (8.06%); MSCI Daily TR Net Emerging Markets in USD (6.62%); and MSCI World ex-U.S. (4.74%), according to data from Bloomberg.

Takeaway: The returns depicted in today’s table offer a powerful reminder that the buy and hold strategy can still serve investors well. Despite rising geopolitical tensions, wars, government lockdowns, and a bear market (in the S&P 500 Index in 2022), each of the indices in today’s table reflect positive total returns over the most recent 5-year rolling period. While the S&P 500 Index remains a clear outlier, there is no way to predict what indices could outperform next. Emerging market and international equities, as represented by the MSCI Emerging Markets and MSCI World (ex-US) Indices, increased by 33.57% and 31.85%, respectively, in 2025 alone. The dollar declined during the year, shedding 9.37% of its value. Will continued pressures on the dollar coupled with restrictive tariffs and resurgent global economies lead to a change in our best performer over the coming years? While we can’t know, we trust today’s data discourages an overly myopic view among equity investors with long time horizons.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P Small Cap 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization. The MSCI World (ex-U.S.) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets excluding the U.S. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The U.S. Dollar Index (DXY) indicates the general international value of the dollar relative to a basket of major world currencies.

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View from the Observation Deck

We are often asked what our favorite sectors are. Sometimes the answer is evident while other times hindsight offers the best clarity. Today’s blog post is one that we update each quarter to lend context to our responses. While the above chart does not contain yearly data, just three sectors in the S&P 500 Index (“Index”) have been the top-performer in back-to-back calendar years since 2005. Information Technology was first, posting the highest total return in 2019 (50.29%) and 2020 (43.89%). Energy was second, posting the highest total return in 2021 (54.39%) and 2022 (65.43%). Communication Services was the most recent addition to this exclusive club, posting a total return of 40.23% in 2024 and 33.56% in 2025, according to data from Bloomberg.

• The top-performing sectors and their total returns in Q4’25 were as follows: Health Care (11.68%), Communication Services (7.26%), and Financials (2.01%). The Index’s total return was 2.65% over the period. The other eight sectors generated total returns ranging from 1.53% (Energy) to -2.87% (Real Estate).
  
  
• By comparison, the total returns of the top-performing sectors in the fourth quarter of 2024 were as follows (not in chart): Consumer Discretionary (14.25%), Communication Services (8.87%), and Financials (7.06%). The worst-performing sectors for the period were: Real Estate (-7.94%), Health Care (-10.30%), and Materials (-12.42%).
  
  
• Click here to access our post featuring the top-performing sectors in Q1’24, Q2'24, Q3'24 and Q4’24.

Takeaway: As we observe from today’s chart, the top-performing sector often varies from quarter to quarter. The fourth quarter of 2025 was no exception, with Health Care and Financials joining Communication Services to round out the trio of top sectors. For the first time since 2021, each of the 11 sectors that comprise the broader Index saw positive total returns over the calendar year. Also notable: Communication Services was the top performing sector in back-to-back calendar years, marking just the third time this has happened since 2005. From our perspective, massive AI-focused investment helps account for the performance of communication services and technology companies (the top performing sector in Q2’25 and Q3’25) last year. In its 2025 AI Index Report, Stanford University noted that U.S. private AI investment totaled $109.1 billion in 2024. Private investment in generative AI increased 18.7% year-over-year to $33.9 billion during the period. Despite the rapid increase, AI capital needs continue to grow. In April 2025, McKinsey reported that $5.2 trillion in data center investment will be required by 2030 to meet global AI demand, according to Reuters. Will a different sector rise to the top in the first quarter of 2026? We look forward to seeing what the data reveals.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The respective S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.  

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View from the Observation Deck

This post is one in a series we update that investigates which of the two styles (growth or value) has been delivering the better results. Click here to see our last post on this topic.

• We have often noted that value stocks tend to outperform growth stocks when the yield on the benchmark U.S. 10-year Treasury note (T-note) rises and underperform them when the yield on the 10-year T-note falls. The yield on the 10-year T-note increased by 325 basis points (bps) over the 5-year period ended 12/9/25. For comparison, the yield on the 10-year T-note declined by 38 bps YTD through 12/9.

• The S&P 500 Index stood at 6,870.40 on 12/5/25, representing a price-only return of 37.88% from its most recent low (4,982.77 on 4/8/25). For comparison, the S&P MidCap 400 and S&P SmallCap 600 Indices were 2.07% and 4.19% below their respective all-time highs as of the same date.
  
  
• The total returns in today’s chart are as follows (Pure Growth vs. Pure Value):

          25-year avg. annual (8.42% vs. 9.79%) 
          15-year avg. annual (12.89% vs. 11.78%)
          10-year avg. annual (12.06% vs. 10.30%)
          5-year avg. annual (8.98% vs. 13.34%)
          3-year avg. annual (15.33% vs. 11.80%)
          1-year (7.92% vs. 11.69%)
          Year-to-date YTD (13.06% vs. 16.04%)

• As many investors are likely aware, weak labor market data and potential overcapitalization among AI companies caused volatility to spike in November. Volatility, as measured by the CBOE Volatility Index, surged from 17.44 on 10/31/25 to 26.42 on 11/20/25. Technology, consumer discretionary, and industrial stocks were hit hardest, declining by 4.29%, 2.39%, and 0.85% (total return) during the month. For comparison, November’s top performing sectors were Health Care (9.31%), Communication Services (6.35%), and Materials (4.17%). 
  
  
• Sector weights had a significant impact on performance over the short run, in our opinion. At a combined weight of 69.5%, the Pure Growth Index had outsized exposure to the worst performing sectors in November (Information Technology, Consumer Discretionary, and Industrials). For comparison, these sectors made up just 20.1% of the weight of the Pure Value Index as of the same date.

• On 11/28/25, the Health Care sector accounted for 18.6% of the weight of the Pure Value Index vs. just 4.3% of the Pure Growth Index, according to S&P Dow Jones Indices. As mentioned above, Health Care was the top performing sector in November. 

• The top three performing S&P 500 Index (“Index”) sectors and their YTD total returns (through 12/9) are as follows: Communication Services (33.76%); Information Technology (27.47%); and Industrials (17.47%).

Takeaway: How quickly things can change! In our last post on this topic (click here), we posited that sector allocation played a significant role in the Pure Growth Index’s persistent outperformance vs. its Pure Value counterpart. It appears that sector allocation is playing a similar role, yet again. Notably, two of the Index’s top-performing sectors YTD (Information Technology and Industrials) were among its worst performers in November, shedding 4.29% and 0.85% (total return), respectively. Those sectors comprise an outsized share of the Pure Growth Index (47.4%) vs. just 7.5% of the Pure Value Index as of 11/28. As a result of this reversal, the Pure Growth Index now lags its Pure Value counterpart YTD and over the trailing 12-months. Valuations may signal continued opportunity ahead for value-oriented investors. The Pure Value Index had a Price to Earnings (P/E) ratio of 13.07 on 12/9 compared to the Pure Growth Index’s P/E of 24.81 at market close on the same date.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The S&P 500 Pure Growth Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest growth characteristics based on three factors: sales growth, the ratio of earnings-change to price, and momentum. It includes only those components of the parent index that exhibit strong growth characteristics, and weights them by growth score. Constituents are drawn from the S&P 500 Index. The S&P 500 Pure Value Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics based on three factors: the ratios of book value, earnings, and sales to price. It includes only those components of the parent index that exhibit strong value characteristics, and weights them by value score. 

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The next post will occur on 1/13/25.

View from the Observation Deck

We update today’s table on a regular basis to provide insight into the variability of sector performance by market capitalization. The table above presents the total returns of three major U.S. equity indices and their sectors over two distinct time frames: the 2024 calendar year, and year-to-date (YTD) through 12/5/25. 

• The S&P 500 Index stood at 6,870.40 on 12/5/25, representing a price-only return of 37.88% from its most recent low (4,982.77 on 4/8/25). For comparison, the S&P MidCap 400 and S&P SmallCap 600 Indices were 2.07% and 4.19% below their respective all-time highs as of the same date.
  
  
• Large-cap stocks, as represented by the S&P 500 Index, posted total returns of 25.00% in 2024, outperforming the S&P MidCap 400 and S&P SmallCap 600 indices, with total returns of 13.89% and 8.64%, respectively, over the period (see table).
  
  
• A similar trend is playing out this year, with the S&P 500 Index increasing by 18.20% vs. 7.82% and 6.70% for the S&P MidCap 400 and SmallCap 600 indices, respectively, over the same time frame.
  
  
• Sector performance can vary widely by market cap and have a significant impact on overall index returns. Communication Services and Information Technology were two of the more extreme cases last year. This year, Communication Services and Consumer Staples exhibit the largest performance difference between market capitalizations.
• Communication Services and Information Technology are the two top-performing sectors in the S&P 500 Index, with total returns of 35.97% and 26.08%, respectively, YTD. By comparison, those sectors returned 30.16% and 14.50%, in the S&P MidCap 400 Index and -9.43% and 23.24%, respectively, in the S&P SmallCap 600 Index over the period. 

Takeaway: As revealed in today’s table, mid-cap and small-cap stocks continue to trail their large-cap counterparts in 2025. At the sector level, large-cap stocks outperformed their small and mid-sized peers in seven of the eleven sectors presented today. Consumer stocks have largely underperformed across all size categories. When we last wrote on this topic in May, (click here) we suggested that investors focus on fundamental drivers of equity returns (earnings growth), rather than short-term conditions (tariff turmoil at that time). Notably, the S&P 500 Index (“Index”) surged by a staggering 39.04% between 4/8/25 (the height of tariff concerns) and 12/5/25. Presently, concerns regarding overcapitalization within the AI trade and the Index’s lofty valuations have taken center stage. To be clear, we expect the Index’s price-to-earnings (P/E) ratio will return to its long-term average at some point, but also believe profit margins (a record 13.1% in Q3’25) and earnings estimates (a record 309.16 in 2026 as of 11/28/25) may lend support to the Index’s valuation, for now. For context, FactSet reported that the Index’s trailing 12-month P/E stood at 28.3 on 12/5/25, compared to its 10-year average of 22.9. As before, we suggest that investors watch adjustments to year-end earnings estimates closely in the new year.

This table is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P SmallCap 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization. The S&P 500 Equal Weighted Index is the equal-weight version of the S&P 500 Index. The 11 major sector indices are capitalization-weighted and comprised of S&P 500, S&P MidCap 400 and S&P SmallCap 600 constituents representing a specific sector.

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View from the Observation Deck

Today’s post compares the performance of consumer stocks to the broader market, as measured by the S&P 500 Index, over an extended period. Given that consumer spending has historically accounted for roughly two-thirds of U.S. gross domestic product, we think the performance of consumer stocks may offer insight into potential trends in the broader economy.

Consumer discretionary stocks staged a stunning recovery this year.

Consumer discretionary stocks plummeted by 13.80% (total return) in Q1’25, compared to an increase of 5.23% for consumer staples over the same period. The tables have turned since, with the discretionary sector surging by 22.13% (total return) from 3/31/25 – 12/1/25 compared to 0.22% for staples over the same period. We find this notable given persistent concern regarding the U.S. consumer’s ability to maintain (and increase) current levels of expenditure.

So, just how healthy is the U.S. consumer?

Real consumer discretionary spending totaled $9.37 trillion YTD thru August, an increase of 3.2% from $9.08 trillion over the same period last year. One reason for increased spending could be burgeoning U.S. household net worth. The Federal Reserve reported that American’s net worth totaled a record $176.3 trillion in Q2’25, an increase of more than $7.0 trillion from the previous quarter, according to Reuters. Consumer sentiment remains muted despite massive wealth gains. The University of Michigan’s Index of Consumer Sentiment plummeted by 29.0% year-over-year (y-o-y) in November to its lowest reading in over three years.

Takeaway: As shown in today’s table, total returns for the S&P 500 Consumer Discretionary Index generally outpace those of the S&P 500 Consumer Staples Index, over time. The early lead staples built over its discretionary counterpart has eroded this year, with the discretionary sector increasing by 22.13% vs. a gain of just 0.22% for staples between 3/31/25 – 12/1/25. As we see it, U.S. consumers’ capacity to spend remains healthy, in large part due to stock market gains. The Federal Reserve reported that U.S. household net worth stood at record levels ($176.3 trillion) at the end of Q2’25. Given the S&P 500 Index’s recent total returns (+10.34% since 6/30/25), we expect this number crested even higher in Q3. Consumer sentiment fell sharply in November, but we think investors should take this survey data with a grain of salt. In our view, exogenous factors, such as the government shutdown and continued tariff threats likely clouded respondents’ outlooks. Notably, data from Adobe revealed that a record $11.8 billion was spent shopping online during Black Friday this year, an increase of 9.1% from last year’s total. Should the consumer remain healthy, the possibility of the U.S. experiencing a notable recession could be diminished. Stay tuned!

This table is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The S&P 500 Consumer Discretionary Index is a capitalization-weighted index comprised of companies spanning 19 subsectors in the consumer discretionary sector. The S&P 500 Consumer Staples Index is a capitalization-weighted index comprised of companies spanning 12 subsectors in the consumer staples sector.  

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View from the Observation Deck

Today’s blog post is intended to provide insight into the movement of bond prices amidst the current investment climate and prevailing interest rate policy. Aside from the most recent data, other dates in the chart are from prior times we’ve written on this topic. Click here to view our last update to this series.

Prices for five of the eight bond indices we track stand at their time series highs.

The Federal Reserve’s (“Fed”) October policy rate reduction, a shuttered U.S. government, continued geopolitical strife, and economic strain are just several catalysts that may account for the price appreciation revealed in today’s chart. An additional cut is expected in December, which could tease fixed income prices higher. On November 28, the federal funds rate futures market was priced for an implied policy rate of 3.67% by year’s end, down from its current level of 4.00% (upper bound).

Inflation remains elevated and lies above its historical mean.

Inflation, as measured by the trailing 12-month rate of change in the Consumer Price Index (CPI), stood at 3.0% in September 2025, up from its most recent low of 2.3% in April 2025. September’s observation pushes the metric even further from the Fed’s stated target of 2.0% and sets the CPI above its 25-year monthly average of 2.6%.

Takeaway: Six of the eight indices in today’s chart saw prices appreciate over the past 12 months (preferreds and 22+ year municipals being the exceptions). Interest rate policy likely played a significant role in these price movements, but we would be remiss not to mention the impact of recent equity volatility, persistent geopolitical tensions, and deteriorating economic data. Investors expect the Fed to lower interest rates in December, with the market implied end of year federal funds target rate sitting at 3.67% compared to 4.00% (upper bound) as of November 28. Do current fixed income prices fully reflect these expectations, or is there room to run? We plan to update this post with relevant information in 2026.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The Morningstar LSTA U.S. Leveraged Loan 100 Index is a market value-weighted index designed to measure the performance of the largest segment of the U.S. syndicated leveraged loan market. The ICE BofA U.S. High Yield Constrained Index tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. The ICE BofA 22+ Year U.S. Municipal Securities Index tracks the performance of U.S. dollar denominated investment grade tax-exempt debt publicly issued by U.S. states and territories, and their political subdivisions with a remaining term to maturity greater than or equal to 22 years. The ICE BofA Fixed Rate Preferred Securities Index tracks the performance of investment grade fixed rate U.S. dollar denominated preferred securities issued in the U.S. domestic market. The ICE BofA 7-10 Year U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government with a remaining term to maturity between 7 to 10 years. The ICE BofA U.S. Mortgage Backed Securities Index tracks the performance of U.S. dollar denominated fixed rate and hybrid residential mortgage pass-through securities publicly issued by U.S. agencies in the U.S. domestic market. The ICE BofA U.S. Corporate Index tracks the performance of U.S. dollar denominated investment grade corporate debt publicly issued in the U.S. domestic market. The ICE BofA Global Corporate Index tracks the performance of investment grade corporate debt publicly issued in the major domestic and Eurobond markets.

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