After the volatility witnessed in early April, U.S. equities have staged a remarkable recovery over the past couple of weeks, with the S&P 500^® up 1% YTD through May 15, 2025, reversing its 15% YTD decline through April 8, 2025. Thanks to optimism surrounding easing tariff tensions and strong Big Tech earnings, mega caps have rebounded, with the S&P 500 Top 50 outperforming The 500™ by 1.2% QTD.

The outperformance of larger stocks has been driven by the Information Technology (IT) sector, with the S&P 500 Information Technology up 14% QTD. Exhibit 1 illustrates that the disparity in performance between IT and the rest of the market has narrowed since the early April turmoil, as stocks from the sector have strengthened. The S&P 500 Information Technology has underperformed The 500 by 2% while the S&P 500 Ex-Information Technology has outperformed by 0.8% YTD.

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Meanwhile, the S&P 500 Equal Weight Index, which has a smaller-cap bias by design, has underperformed The 500 by 3% so far this quarter. Exhibit 2 shows that the outperformance of mega caps and underperformance of equal weight has been a notable reversal compared to Q1 2025, which was characterized by mega-cap underperformance and equal weight’s outperformance.

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Combining a size perspective with a sector perspective through a sector attribution of the S&P 500 Equal Weight Index versus the S&P 500 can help to understand the shifts in the equal weight index’s relative performance seen in Exhibit 2. Exhibit 3 illustrates that cross-sector weighting, or sector weight differences, were the key driver of the index’s outperformance in Q1 2025, stemming primarily from the underweight to IT. In contrast, so far this quarter, the underweight to IT has turned from a performance contributor to a performance detractor, consistent with the sector’s recent strong performance.

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Although IT has made a significant comeback, the sector’s diversification properties have diminished. In Exhibit 4, we calculate the spread in trailing 12-month volatility between the S&P 500 versus the S&P 500 Ex-Information Technology. When this spread is positive, the inclusion of the sector increases volatility in the benchmark; when negative, the sector acts as a diversifier. Note that the positive spread for IT has continued to increase, approaching levels last seen during the Tech bubble.

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Zooming out, Exhibit 5 indicates that dispersion among S&P 500 sectors has trended upward since the start of the year. With a 24% QTD performance spread between the leading Information Technology and laggard Health Care sectors, sector allocation decisions may continue to be especially important.

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