Bianca Botes, Managing Director at Citadel Global
At the time of writing, the United States’ (US’s) S&P 500 is up around 14% for the year, a figure that on its own describes a market in good health but offers little indication of who has delivered that return and what it truly means for investors’ returns.
If you break the S&P 500 into its 11 sectors, the picture takes on a different hue. The technology sector jumped 36%, while energy, unsurprisingly, saw gains of 44.6%. The remaining nine sectors however, ranged from a 10.6% gain in healthcare to losses in utilities, communication services and consumer discretionary, the last of which is down 5.1%. Financials are essentially flat at 0.2%.
The S&P 500 has two indices – the equal-weighted S&P 500, which gives each constituent the same weight of 0.2%, regardless of size and the cap-weighted index which weights each company by market capitalisation. The equal weighted index had gained around 9.5% at the start of October against 12.6% for the cap-weighted index on the same date and the Dow, with its heavier tilt toward industrials and financials, sat at 7.2%. This highlights that the headline return is being carried by a small number of stocks inside two sectors and investors holding a genuinely diversified US portfolio will have experienced a far more modest year than the 14% jump in the index suggests.
The drivers behind the technology surge
The more instructive detail lies within technology itself, because the gains have not come from the companies most investors associate with the artificial intelligence (AI) trade. The Magnificent Seven are on course for their weakest collective year since 2022, with Microsoft the poorest performer of the group. Software stocks were sold heavily in February on concern that AI would erode the very business models it was expected to enhance, a move that removed close to $1 trillion in market value. Returns have instead accrued to the physical supply chain behind AI infrastructure, where demand for memory and storage has driven extraordinary moves in Micron, up roughly 277% by early October, Sandisk, up more than 600% and Dell, up close to 350%. Capital has moved from the companies spending on AI capacity to the companies being paid to build it and that leadership is concentrated enough that a single soft signal on hyperscaler capex can move the whole sector, as the clusters of 10% single-session declines across storage, chip and optical networking names this month have shown.
Energy, a spanner in the works
Energy’s leadership has a more direct explanation. The US-Iran conflict that broke out at the end of February and the threat to shipping through the Strait of Hormuz that accompanied it, pushed crude sharply higher and West Texas Intermediate (WTI) is trading above $93/barrel at the time of writing. The energy supply shock has also reshaped the rate outlook, which is the factor most responsible for weakness elsewhere in the market. The US Federal Reserve (Fed) raised the funds rate by 25 basis points to 3.75% to 4% on 16 September, its first hike since July 2023 and the first policy move under Fed Chair, Kevin Warsh, with recent data releases pointing to a further increase before year end, while the 10-year US Treasury yield is holding above 5.2%. At those levels, utilities, real estate and the more leveraged parts of consumer discretionary carry a direct valuation headwind, which is precisely where the lagging sectors are concentrated.
Europe and the UK’s equity outlook
Europe has followed a similar script from a less favourable starting point. The Stoxx 600 is up roughly 6.5% for the year, having recovered from an 8% fall in March when US-Iran hostilities began and the European Central Bank (ECB) has raised its deposit rate twice, to 2.50% in September, as the energy shock lifted its 2026 inflation forecast to 3%. Germany’s DAX, which gained 23% in 2025 on the strength of fiscal expansion in defence and infrastructure, has struggled to hold ground this year. The United Kingdom (UK) has fared better on the surface, with the FTSE 100 up around 5% in price terms and 8% including dividends, helped by an index weighted toward energy, mining and defence. The Bank of England (BoE) held the Bank Rate at 3.75% in September, though three of nine members voted for a hike and with Consumer Price Index (CPI) inflation expected to reach 3.75% in the fourth quarter, means a move at the November meeting cannot be ruled out.
The JSE’s tech and commodities lag
South Africa (SA) sits at the other end of the spectrum. The Johannesburg Stock Exchange (JSE) All Share Index is down close to 7% through the first three quarters after rising 39% in 2025, a reversal driven largely by the same precious metals miners that powered last year’s rally, while tech giant, Naspers and its spinoff, Prosus, have taken around four percentage points off the index as Tencent has lost more than a quarter of its value. Select domestic names have held up, with grocery retailer, Shoprite, up 22% for the year, but two South African Reserve Bank (SARB) hikes, taking the repo rate to 7.25%, leave limited room for a broad recovery in domestically focused equities in the near term.
The real picture
The thread running through all of our examples is that this year’s returns have been earned by a narrow set of positions tied to either the energy shock or the AI build-out, while the broader market has absorbed the cost of the higher rates those same forces produced.
ENDS
