Life has been a little eventful since we last checked in. Under normal circumstances, this blog would review March and Q1 performance of S&P 500^® sectors and blends. Yes, tariffs are the elephant in the room we’ve been unable to avoid all year, but as of April, that elephant seems to have invited the rest of the herd inside for a rampage.

In April, the tariff narrative went global, sparking a 10.5% drop in The 500^TM over the course of two days, the steepest two-day decline since the dawn of the COVID-19 pandemic in March 2020. As shown in Exhibit 1, no sector was spared from the pain over the first week of April, with performance ranging from a 3.8% drop for Health Care to Energy’s 15.3% fall.

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Although every sector declined YTD in April, not all fell as much as the broader market. At any given time, at least one sector must be outperforming the others, with historically cyclical and defensive sectors faring better or worse depending on market direction. In a previous blog, we illustrated the relative performance of cyclical and defensive blends of sectors through the first two months of 2025, using a simple methodology of creating two blends that combine five higher-risk or five lower-risk sectors, as discussed in recent research.¹

In Exhibit 2, we show daily excess returns of each five-sector blend (cyclical and defensive) for every trading day of 2025, through April 4.

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Two observations might stand out from this plot, one quite intuitive and the other perhaps more curious. First, the upward sloping trend of the cyclical data points and the downward slope of the defensive blend data illustrate that each has had a historical tendency to directionally outperform in markets where we would expect them to. Second, the spread of excess performance outcomes for the cyclical blend appears more tightly grouped than that of the defensive blend. Why might this be so?

The answer is that cyclical sectors are where we find most of the Magnificent 7, which have been responsible for a disproportionate share of The 500’s decline. More precisely, while the Magnificent 7 averaged 31.9% of total weight in the benchmark YTD through April 4, they were responsible for contributing more than half of the benchmark’s decline over the same period. Many of these stocks were already on unsteady ground after disruption of the AI competitive landscape in Q1, and now that tariffs have been announced to be broader and larger than anticipated, their sectors’ higher-than-average foreign revenue exposure has caused a new wave of worries.

Exhibit 3 illustrates the weight of each blend in The 500 and the proportion of Magnificent 7 weight in each, suggesting that the cyclical blend’s fortunes may be more closely (but not entirely) tied to those of the largest stocks in the benchmark, which would make relative outperformance more constrained when those large stocks lead performance up or down.

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Despite this concentration of mega-cap stocks in the cyclical blend, it has still managed to slightly outperform The 500 by 0.3% YTD, as shown in Exhibit 4. Of course, the defensive blend has withstood the barrage even better, outpacing the benchmark by 9.9%.

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¹Cyclical and defensive blends are composed of the top five and bottom five sectors as ranked by historical beta and volatility. Real Estate, ranked in the middle of the 11 S&P 500 sectors, is excluded from this analysis.

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