By Christine Idzelis
The S&P 500’s tech sector is down so far this month, even after its big rally on Friday
Tech losses in December are weighing on the S&P 500’s climb in 2025.
The recent broadening of gains across the U.S. stock market is a positive sign heading into 2026 – but it may be tough for the S&P 500 to rally without help from its technology sector.
Bespoke Investment Group analyzed the performance of the S&P 500 SPX and its 11 sectors from Oct. 8 through Dec. 18 in the chart below, which shows just how crucial tech is to the index amid the closely watched artificial-intelligence boom.
BESPOKE INVESTMENT GROUP
“The fact that technology, which makes up over a third of the S&P 500, has declined over 3%, and the market has treaded water, indicates a broadening of performance,” Bespoke said, pointing to the data captured in the chart above. “It also illustrates how hard it is for the market to make headway without technology participating.”
Meanwhile, the S&P 500 has declined so far this month, weighed down by losses in its information-technology sector XX:SP500.45. The S&P 500 has seen a modest December retreat despite an exchange-traded fund that equally weights stocks in the index advancing this month, in a sign of broadening stock-market breadth.
The Invesco S&P 500 Equal Weight ETF RSP has risen 0.7% this month through Friday, outperforming the widely followed S&P 500 index. The S&P 500 has fallen 0.2% in December, with its tech sector down a steeper 0.5% so far this month, FactSet data show.
Still, the U.S. stock market has gotten a big lift in 2025 from tech’s strong rally, with investors trying to discern whether the AI boom has formed a bubble.
“We push back on the bubble analogies” between the current AI boom and the dot-com era in the late 1990s that ended with a bust, said Marci McGregor, head of the chief investment office’s portfolio strategy at Bank of America’s private bank and Merrill Wealth Management, in a phone interview. With the AI boom, “the market is really pushing back” at times, showing some degree of skepticism that, to McGregor’s thinking, makes the current enthusiasm distinct from the “euphoria that you saw in the late ’90s.”
McGregor expects the bull market in U.S. stocks to “march ahead” in 2026, supported by “double-digit earnings growth” for the S&P 500. While the U.S. stock market may trade at “a premium” next year, its “fundamentals are really strong,” she said.
The S&P 500 ended Friday 1% below its record close on Dec. 11, and up 16.2% so far this year, according to Dow Jones Market Data. That’s after rallying 23.3% last year and 24.2% in 2023, FactSet data show.
U.S. stock-market breadth has been improving, with the S&P 500 Equal Weight Index XX:SP500EW “quietly making new highs” amid a recent rotation away from the tech sector, McGregor said. “So we want to be pretty well diversified.”
Looking out to 2026, McGregor said the sectors that she likes in the stock market include financials, utilities and industrials.
She expects utilities XX:SP500.55 may benefit from increased electricity demand needed for AI, while financials XX:SP500.40 and industrials XX:SP500.20 are cyclical areas that stand to do well as McGregor anticipates economic growth will pick up next year.
Industrials should get a lift from spending on infrastructure as well as rising defense budgets in “the red-hot geopolitical world that we live in,” according to McGregor. As for financial companies, a steepening yield curve in the U.S. bond market should be positive for their net interest income as the Federal Reserve continues its interest-rate-cutting cycle in the year ahead, she said.
Anna Paglia, chief business officer at State Street Investment Management, remains positive on the AI boom continuing in 2026.
“We don’t think it’s a bubble,” even if there may be “a couple hiccups along the way,” she said in a phone interview. “We have a high conviction in technology.”
The State Street Technology Selector Sector SPDR ETF XLK, which tracks an index of the S&P 500’s tech stocks, has soared 24.4% this year through Friday, FactSet data show.
Another way to get exposure to AI is the State Street Communication Services Select Sector SPDR ETF XLC, said Paglia.
The S&P 500 is highly concentrated in a handful of Big Tech companies that span across three sectors: information technology, communication services XX:SP500.50 and consumer discretionary XX:SP500.25.
With the bull market in U.S. stocks now running for more than three years, Paglia said she expects many investors will be looking for ways to diversify their portfolios, potentially globally and beyond just stocks.
She cited the SPDR Bridgewater All Weather ETF ALLW as an example of a strategy designed to focus on “portfolio resiliency,” allocating across different asset classes to “avoid concentration” in any one particular segment of the market.
U.S. stocks ended higher Friday, with the S&P 500 rising 0.9% , the Dow Jones Industrial Average DJIA gaining 0.4% and the tech-heavy Nasdaq Composite COMP rallying a sharp 1.3%.
-Christine Idzelis
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12-19-25 1856ET
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