Technology and Communication Services Lead 2025 Market Gains; Consumer Defensive and Real Estate Sectors Underperform

The Morningstar US Market Index concluded 2025 with a 17.4% gain. This performance was largely influenced by the communication services and technology sectors.

Sector Performance Highlights

The Morningstar US Communication Services Index recorded a 33.9% increase, while the Morningstar US Technology Index advanced by 21.4%. Together, these two sectors accounted for approximately 60% of the market's total gains in 2025. The technology sector contributed 7.0 percentage points, and the communication services sector contributed 3.1 percentage points to the overall 17.4% market return.

In contrast, the consumer defensive sector posted a 1.1% gain, and real estate stocks experienced an overall gain of 4.1%. Each of these sectors added 0.1 percentage points to the total market return.

Key Contributors and Detractors

Nvidia, with a market capitalization of $4.7 trillion, and Alphabet, with a market capitalization of $3.9 trillion, each contributed over 2 percentage points to the market's return. Combined, these two companies represented more than 25% of the market's total gains in 2025.

Within the technology sector, the semiconductor industry, which provides the hardware infrastructure for artificial intelligence (AI) computing, contributed 11.9 percentage points to the Morningstar US Technology Index's 21.4% gain. The Morningstar US Semiconductors Index increased by 42.8%. Nvidia contributed 6.0 points, and Broadcom contributed 2.7 points within this industry. Software infrastructure firms, including Microsoft (contributing 2.3 percentage points with a 15.6% return) and Palantir (contributing 1.1 percentage points with a 135.0% return), also made contributions to the sector's performance.

Conversely, software application companies experienced a decline, detracting 1.0 percentage point from the technology index's gain. This was attributed to market concerns regarding AI's potential impact on this segment. Salesforce decreased by 20.2%, and ServiceNow declined by 27.8%, each detracting 0.3 percentage points.

Within the communication services sector, Alphabet contributed 28.0 percentage points to the index's 33.9% gain. Meta Platforms contributed an additional 3.3 percentage points. Alphabet's stock increased by nearly 50% from September 1, following the release of its Gemini 3 AI model and a reduction in regulatory concerns.

The consumer defensive sector's 2025 performance included a 4.9% gain in the first two quarters, followed by a 3.8% decline in the latter half of the year, resulting in a net 1.1% gain. Procter & Gamble's 12.3% decrease detracted 1.4 percentage points from the sector's gains. Costco detracted 0.9 percentage points, and Target detracted 0.5 percentage points. Factors influencing the sector's performance included sluggish consumer spending and increased input costs due to tariffs.

Real estate stocks concluded the year with a 4.1% gain. Equinix detracted 1.1 percentage points from the sector's performance, and Alexandria Real Estate Equities detracted 0.5 percentage points.