The Broadening Bull Market: Beyond Big Tech in 2025

The U.S. equity market's long-standing reliance on Big Tech dominance is showing signs of fracturing in 2025. While the "Magnificent 7" and other growth megacap stocks have historically driven the S&P 500's gains, a confluence of macroeconomic shifts, valuation resets, and sector rotations is creating fertile ground for diversification. Investors who rebalance their portfolios to include small-cap value stocks, international markets, and non-tech sectors may now be better positioned to capitalize on a broadening bull market.

Small-Cap Value Rotation: A Long-Anticipated Shift

The Russell 2000 Value ETF (IWN) and its growth counterpart (IWO) offer a microcosm of this trend. While IWO has outperformed IWN year-to-date in 2025 with a 1.31% return versus IWN's -0.24% according to PortfolioLab data, the broader narrative reveals a structural shift. Small-cap value stocks, historically undervalued relative to their growth peers, are now trading at record-low valuations compared to the S&P 500. This discount, coupled with improving earnings growth expectations for small caps-projected to outpace large caps after years of underperformance-has reignited interest in the segment.

The iShares Russell 2000 Value ETF (IWN) has delivered a 13.34% YTD return in 2025, outpacing its three-year annualized return of 7.73% according to PortfolioLab data. Meanwhile, the iShares Russell 2000 Growth ETF (IWO) has posted a 16.11% YTD return according to Yahoo Finance, but its higher volatility (a maximum drawdown of -60.10% versus IWN's -61.55%) underscores the risks of overconcentration in growth. For investors seeking income, IWN's 1.79% dividend yield according to PortfolioLab data also provides a compelling edge.

The Federal Reserve's rate-cut cycle in 2025 has further amplified this rotation. Small-cap value stocks, particularly those with strong free cash flow, have benefited from cheaper financing and improved discount rates. ETFs like the VictoryShares Small Cap Free Cash Flow ETF (SFLO) and Avantis U.S. Small Cap Value ETF (AVUV) have surged, reflecting renewed demand for undervalued, cash-generative businesses.

International Markets: A New Frontier for Value

The U.S.-centric growth narrative has also faced a formidable challenger: international value stocks. The MSCI EAFE Value Index, which tracks large- and mid-cap developed market equities outside North America, has delivered a staggering 33.8% year-to-date return in 2025-the strongest performance in over 25 years. This outperformance, driven by a 55% contribution from the financial sector, marks a dramatic reversal of the U.S. growth dominance that defined the past two decades.

Banks in the EAFE region, in particular, have thrived amid global rate hikes. Net interest income and return on equity (ROE) for regional banks have surged from a low of 3.86% in 2021 to 12% by October 2025. This performance has outpaced the Russell 1000 Growth Index by nearly 20 percentage points, highlighting the appeal of value-oriented, interest-rate-sensitive sectors.

Meanwhile, the MSCI ACWI Index-a global benchmark-has outperformed both the S&P 500 and S&P 500 Equal-Weight Index in 2025, with a 26.02% YTD return. This suggests that investors are increasingly allocating to non-U.S. markets, where valuations remain attractive and earnings growth is accelerating.

Diversification Beyond Big Tech: The S&P 500 Equal-Weight Index

The S&P 500 Equal-Weight Index has emerged as a compelling alternative to the cap-weighted version, offering broader exposure to non-tech sectors. While the standard S&P 500 has surged nearly 300% since October 2022, the Equal-Weight variant has risen by 200% over the same period. This divergence reflects the Equal-Weight Index's reduced reliance on the "Magnificent 7," which have historically skewed market performance.

In 2025, the Equal-Weight Index has shown stronger resilience during market corrections. For instance, during the tariff-induced volatility in early 2025, the Equal-Weight S&P 500 experienced a smaller drawdown than its cap-weighted counterpart. This diversification benefit is critical in a market where overconcentration in a handful of stocks poses systemic risks.

Sector analysis further underscores the Equal-Weight Index's appeal. Communication Services, Industrials, and Health Care have been upgraded to "Outperform" by the Schwab Center, with trailing six-month returns of 30.4%, 8.6%, and 21.1%, respectively. These sectors, poised to benefit from AI adoption and economic resilience, contrast sharply with underperforming areas like Consumer Discretionary (11.5% six-month return) and Real Estate (-4.1% twelve-month return) according to Alaric Securities.

Strategic Implications for 2025

The data paints a clear picture: the bull market is no longer confined to Big Tech. Investors who rebalance their portfolios to include small-cap value stocks, international equities, and non-tech sectors can mitigate risk while capturing emerging opportunities.

Reallocate to Small-Cap Value: With valuations at multi-decade lows and earnings growth expectations rising, small-cap value ETFs like IWN and AVUV offer a compelling risk-rebalance.

Expand Global Exposure: The MSCI EAFE Value Index's outperformance highlights the potential of international value stocks, particularly in financials and industrials.

Diversify Within the S&P 500: The Equal-Weight Index's balanced sector exposure reduces concentration risk and aligns with the broadening bull market.

As the Federal Reserve's rate-cut cycle continues and global markets reprice, the strategic case for diversification has never been stronger. The bull market of 2025 is no longer a one-trick pony-it's a multi-act show.