Following the S&P 500's Correction, What is Likely to Happen Next?

A stock index correction is typically defined as a drop of at least 10% from a recent peak, while a bear market is characterized by a decline of 20% or more. On Friday, the S&P 500 slipped into correction territory after falling 1.4%, marking a 10.1% pullback from its most recent closing high on February 19.

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The performance of the 11 sectors within the S&P 500 has varied this year, with some struggling while others have shown resilience. Below is a breakdown of sector returns for 2025, along with data from previous years, factoring in dividends. The table is sorted by this year's price performance, from lowest to highest, with the full index at the bottom.

• Consumer Discretionary: Down 15.5% in 2025, following gains of 30.1% in 2024 and 42.4% in 2023.
• Information Technology: Dropped 12% this year after surging 36.6% in 2024 and 57.8% in 2023.
• Communication Services: Declined 5.2% in 2025 but had robust growth in 2024 (40.2%) and 2023 (55.8%).
• Industrials: Slipped 2.3% this year, coming off a 17.5% gain in 2024.
• Financials: Down 1.8% in 2025 but had a strong 30.6% rise last year.
• Real Estate: Flat this year after increasing 5.2% in 2024.
• Materials: Gained 0.9% in 2025, after no change in 2024.
• Consumer Staples: Rose 1.6% this year, following a 14.9% increase in 2024.
• Energy: Increased 1.9% this year after a 5.7% gain in 2024.
• Utilities: Up 2.2% in 2025, recovering from a 7.1% decline in 2023.
• Healthcare: The best-performing sector in 2025, up 4.6%.

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The S&P 500 itself has fallen 5.9% so far this year after gaining 25% in 2024 and 26.3% in 2023. While the bull markets of the past two years may have overshadowed the S&P 500’s 18% decline in 2022, the recent correction serves as a reminder of market volatility.

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Market analyst Isabel Wang examined historical correction trends to assess what may come next. Meanwhile, Joseph Adinolfi identified six key technical indicators that investors should monitor after the index’s recent downturn.

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Mark Hulbert suggested that the worst of the market decline may be behind us and examined the potential timeline for an S&P 500 recovery. For investors considering buying into the dip, analysts highlighted 13 growth stocks that could rebound strongly after their recent declines.

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For those seeking alternatives outside U.S. markets, global investment opportunities may be worth considering. Jonathan Burton spoke with Hedgeye Risk Management CEO Keith McCullough, who provided insight into his asset allocation strategy amid a weakening U.S. dollar and uncertainty surrounding trade policies. He also shared exchange-traded fund (ETF) recommendations aimed at capitalizing on current conditions while mitigating risks.

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Tesla’s Performance and the Magnificent Seven

Tesla has had a particularly tough start to 2025, with its stock plummeting 40%—making it the second-worst performer in the S&P 500, just ahead of Deckers Outdoor Corp., which fell 42%.

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The so-called "Magnificent Seven" tech stocks, which have been key drivers of market performance, have also had mixed results this year:

• Meta Platforms: Up 1% in 2025, after soaring 66% in 2024 and 194% in 2023.
• Microsoft: Down 10% this year, following a 13% increase in 2024.
• Amazon: Declined 12% in 2025 after gaining 44% last year.
• Alphabet: Dropped 14% this year but rose 36% in 2024.
• Nvidia: Down 14% in 2025 after a remarkable 171% gain last year.
• Apple: Declined 16% this year following a 31% rise in 2024.
• Tesla: Down 40% in 2025 after climbing 63% last year.

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These seven companies collectively make up 30.6% of the SPDR S&P 500 ETF Trust (SPY), which tracks the broader index. Their market cap-weighted structure means their performance can heavily influence overall market movements, amplifying both gains and losses.

With Tesla’s steep decline, investors may be wondering whether the stock has reached a bottom. Lawrence McMillan analyzed Tesla’s options trading activity to assess the potential for a rebound, while Claudia Assis examined an increasing trend of Tesla owners listing their vehicles for sale, possibly influenced by CEO Elon Musk’s political actions.

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Microsoft’s Valuation and Growth Outlook

Microsoft's stock has dropped 10% in 2025, bringing its forward price-to-earnings (P/E) ratio down to 26.3 from 29.9 at the end of 2024. For comparison, the S&P 500’s forward P/E has fallen to 20.3 from 21.6.

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Despite this decline, Microsoft’s valuation might still be justified by its growth potential. Analysts estimate the company’s revenue will grow at a compound annual rate of 13.7% from 2024 to 2026, outpacing the projected 6.1% growth rate for the S&P 500. Additionally, Microsoft’s earnings per share (EPS) is expected to rise at a 14.6% CAGR over the same period, compared to 13.5% for the broader index.

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Therese Poletti highlighted comments from D.A. Davidson analyst Gil Luria, who believes Microsoft is poised to outperform other major tech firms moving forward.

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The Broader Economic Outlook

While corporate earnings and sector performance play a major role in stock market movements, macroeconomic conditions are also shaping investor sentiment. A challenging economic environment, especially for consumers, could weigh on market performance in the coming months. As uncertainties persist, investors are keeping a close watch on key data points, market trends, and company earnings reports to navigate the shifting landscape.

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