While stocks opened 2025 on an upbeat note, with investors hoping to build on the late 2024 post-election rally, the market is ending the year’s first quarter largely in the red, with none of the sectors posting double-digit gains.
In the first three months, the energy sector has emerged as the biggest gainer, posting a return of 8.08%. This performance contrasts with technology equities, which had been a market leader for the past two years but are now firmly in the red, declining by a steep 15.03%.
Indeed, some of the leading energy stocks driving the momentum include ExxonMobil (NYSE: XOM), which is up 10.63%, and Chevron (NYSE: CVX), which gained 15.47%.
Generally, the rally in the energy sector can be tied to a combination of fundamentals, such as geopolitical uncertainty in the Middle East, which has tightened supply expectations.
Similarly, amid general market volatility, investors are seemingly turning to options like XOM stock, which offers historically perceived defensive attributes with minimal risks and an impressive dividend yield.
To this end, it can be argued that the stock market is experiencing a capital rotation, with investors possibly moving away from high-risk stocks such as those in the technology sector.
Among the market leaders, basic materials rose 3.27% in second place, followed by healthcare, which rose 1.7%. Utilities and financials gained 1.47% and 1.15%, respectively. Consumer defensive stocks inched up 0.69%.
On the downside, real estate dipped 0.47%, while industrials fell 5.03%. Communication services dropped 7.56%. Consumer cyclical stocks declined 13.8%, mainly dragged down by Amazon (NASDAQ: AMZN) losses at 15.86%.
Technology stocks lead in losses
Meanwhile, technology stocks, which fueled the market rally in 2023 and 2024 driven by the booming artificial intelligence (AI) space, have struggled.
Besides the impact of uncertainty stemming from Donald Trump’s trade tariffs, the industry faces concerns over the possibility of fading AI hype and what some analysts consider overstretched valuations for companies such as American software giant Palantir (NASDAQ: PLTR).
Within this category, Nvidia stock is among the biggest losers, down over 21%, while Oracle (NYSE: ORCL) recorded a decline of 17.82% and Apple (NASDAQ: AAPL) dropped 15.61%. Other notable underperformers include Tesla stock, down 42.99%, and Broadcom (NASDAQ: AVGO), down 29.44%.
What lies for the stock market in Q2 2025
Ahead of the second quarter of 2025, investors anticipating a possible recovery in the market might have to wait longer, as analysts’ sentiments and technical indicators suggest more losses could be on the horizon. President Trump further complicates this after hinting at more tariffs, which could destabilize the market.
According to a Finbold report, technology stocks will likely extend the current downside, considering that the sector’s equities on the S&P 500 at the close of the last trading session formed the first death cross in three years. The last time this bearish pattern occurred, it triggered a 25% decline over the following seven months.
On the other hand, Chris Vermeulen, Chief Market Strategist at The Technical Trader, warned that major indices, including the S&P 500 and Nasdaq, are slowing, driven by underperforming technology stocks. To this end, he believes the market is within ‘striking distance’ of a bear territory, which might occur in a matter of weeks.
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