Key takeaways:

  • Market volatility can prompt investors to reevaluate their portfolio allocations and implement diversification strategies.
  • The shift towards value-oriented sectors in the stock market likely highlights the expanding leadership within equity markets.

03/27/2025 – Investors today encounter a series of persistent challenges, including heightened recession risks, stock market corrections, widening credit spreads, and government policy uncertainties. These factors collectively contribute to a complex and volatile investment landscape. While these challenges may be unsettling, they also present an opportunity for investors to reevaluate their portfolio allocations and implement adjustments to enhance diversification.

Many investors may find their portfolios overly concentrated in large-cap growth stocks. This is unsurprising given the consecutive double-digit annual gains of the S&P 500® Index, largely driven by the Magnificent Seven stocks. The year-to-date decline of the Mag-7 stocks and the growth sectors of the S&P 500® Index could have broader implications.

Growth stocks continue to be the primary drag on overall stock market performance in 2025. As of the market close on March 24, the growth-oriented sectors of the S&P 500 are all down year-to-date: consumer discretionary by over 10%, technology down by 8%, and communication services by 2%.

Since the S&P 500® Index peaked on February 19 and subsequently corrected, a subtle rotation towards large-cap value stocks has emerged amidst market turbulence. During this period, investors have shown an aversion to high-beta, momentum factors, instead favoring dividend-paying stocks, higher quality, and attractive valuations. Specifically, the more defensive and value-oriented sectors, such as health care, consumer staples, and financials, have outperformed technology stocks and growth sectors.

Value stocks have provided much-needed stability in diversified portfolios amid recent market turmoil. Year-to-date, the Russell 1000® Value Index has gained approximately 2.5%, while the Russell 1000® Growth Index has declined by 5%. This outperformance follows two consecutive years where value stocks lagged growth by over 20% on a relative basis.

A graph illustrating the Russell 1000 Growth & Value Indices relative performance over rolling 5-year periods.

This rotation towards more value-oriented sectors is likely highlighting the broadening of leadership in equity markets. While investors are concerned about potential economic weakness this year, earnings for firms in the Russell 1000® Value Index are projected to grow by approximately 9% in 2025, following two consecutive years of modest profit growth. Companies within the value category derive a larger portion of their revenue from domestic sources, whereas earnings for growth companies are often more vulnerable to global economic trends.

When discussing growth and value, it’s important to recognize that these labels can be misleading and may amplify concentration risk in investor portfolios. For example, as of this writing, the largest weighting in the S&P 500® Value Index is technology at 22%. Examining an index’s or index fund’s composition can help investors better understand their exposure to concentration risk. Regardless of whether a portfolio is overly concentrated, diversification remains a prudent strategy to help long-term investors stay on track to their goals.
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Author(s)

Mark Hackett, CFA, CMT

Chief Market Strategist, Nationwide Investment Management Group

Mark Hackett is the Chief Market Strategist for Nationwide’s Investment Management Group, bringing more than 20 years of experience in the asset management industry to the role.

Full bio

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Disclaimers

This material is not a recommendation to buy or sell a financial product or to adopt an investment strategy. Investors should discuss their specific situation with their financial professional.

Except where otherwise indicated, the views and opinions expressed are those of Nationwide as of the date noted, are subject to change at any time and may not come to pass.

Russell 1000® Growth Index: An unmanaged index that measures the performance of the large-capitalization growth segment of the U.S. equity universe; includes those Russell 1000® Index companies with higher price-to-book ratios and higher forecasted growth values.

Russell 1000® Value Index: An unmanaged index that measures the performance of the large-capitalization value segment of the U.S. equity universe; includes those Russell 1000® Index companies with lower price-to-book ratios and lower forecasted growth values.

Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. The Fund is not sponsored, endorsed, or promoted by Russell, and Russell bears no liability with respect to any such funds or securities or any index on which such funds or securities are based. Russell ® is a trademark of Russell Investment Group.

S&P 500® Index: An unmanaged, market capitalization-weighted index of 500 stocks of leading large-cap U.S. companies in leading industries; it gives a broad look at the U.S. equities market and those companies’ stock price performance.

S&P 500® Value Index: A style-concentrated index designed to track the performance of the S&P 500 stocks that exhibit the strongest value characteristics by using a style attractiveness weighting scheme.

S&P Indexes are trademarks of Standard & Poor’s and have been licensed for use by Nationwide Fund Advisors. The Products are not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s does not make any representation regarding the advisability of investing in the Product.