The market's first half broke from the AI trend
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If stocks are up, they tend to keep going up. But the companies that drove the market higher in the first half of 2025 are not typical of bull markets.
Why it matters: As investors confronted uncertainty, with a record number of companies mentioning the term on earnings calls, market leadership skewed more defensive than growth-oriented.
- That could indicate the current market highs are not on the strongest footing as the second half of the year kicks off.
By the numbers: The best performing sectors in the first half of the year were industrials, communication services and financials. These are not the growth names that tend to rally in frothy environments.
- Tech was the fifth-best performing sector year to date, up just over 6.5%.
- Utilities — a sector that could be seen as defensive since consumers are more likely to pay their utility bills even amid economic slowdowns — outperformed big tech.
- Investor excitement about artificial intelligence "faded during the midst of the tariff selloff in March and April," according to a note from Clark Bellin, president and chief investment officer at Bellwether Wealth.
Between the lines: Remember the Magnificent 7? The basket of tech stocks is up just 1.7% year to date (though it is up over 35% from its April low).
- Tech has still been outperforming the broader market since the April lows, and those gains are expected to continue, Bellin says.
Yes, but: The shift in leadership away from tech could also be viewed as a positive for investors who worry about market breadth.
- Mark Hackett, chief market strategist at Nationwide, calls the current rally "broad based" in a note that described the first half of the year as "tumultuous but resilient."
What we're watching: Consumer discretionary stocks were the worst-performing sector for the first half of the year.
- If that is any indication that spending is under pressure due to economic uncertainty, it could be a warning sign for investors who are otherwise all too happy to ignore the volatility and ride the bull train to fresh highs.
