By Tim Courtney, Chief Investment Officer

From 2023 through 2025, large U.S. stocks delivered strong returns in every calendar year, and the S&P 500 grew 86% cumulative over those three years.¹ Because of such strong and consistent growth, many investors assume the majority of stocks participated in most of that growth, but the reality is different.

Many times we see certain sub-sectors of stocks underperforming broad indexes due to unfavorable news. We had a recent example of this when news about Medicare reimbursement led to a number of healthcare stocks declining 10-20% in a day or two.² That kind of move seems drastic to some but it is how markets incorporate new information into prices. Prices adjust quickly, and may readjust later, as investors continually assess future expected cash flows and risks. Software stocks also suffered declines recently because of headlines tied to AI being a competitive threat to these companies.³

But companies affected by bad headlines are not the only stocks that may underperform an index. Many times large numbers of stocks underperform the index simply because the market happens to be favoring other stocks and sectors for a time. Looking inside the S&P 500 in any given year, it is common to find a majority of stocks underperforming the index.

Over the last three years this has definitely been the case. In 2023, 73% of stocks in the index trailed the index’s return. In 2024 that number was 72%, and in 2025 it was 71%.⁴ During this time, only three out of every 10 stocks were driving the market each year.⁴

Even more surprising: In each of these years, one third of stocks not only underperformed the index but actually fell in price.⁴ It may seem strange that a third of stocks had negative returns while the overall index was positive 26%, 25% and 17%, respectively;⁴ but this is also common. Over the last 20 years, an average of 34% of S&P 500 stocks are negative each year.⁴

These are not necessarily “bad” stocks. In many cases these are great companies with healthy cash flows that are tied to negative news or unfavored by market participants for a time. Many of the strongest companies that seem invincible are not immune to large price declines. Apple’s products are everywhere, but it’s easy to forget that they suffered in the wake of the dot-com bubble, dropping 50% in a single day and 77% over three years.⁵ Meta lost about 76% of its value between 2021 and 2022, along with Tesla (-68%) and Amazon (-53%).⁶ And Microsoft fell 67% over a whole decade from 2000-2009.⁷

We should expect to see negative returning stocks in an index or portfolio every year. This is the very definition of diversification. Understanding that dynamic makes it easier to stay disciplined. Remaining committed to a well-constructed, diversified portfolio is often the most effective way to navigate the noise that markets inevitably produce. If you have questions about your portfolio, contact your Exencial advisor.

Sources:

1. CNN (12/31/25) – US Stocks Just Posted a Third Straight Year of Stellar Gains
2. Investopedia (1/27/26) – Here's Why Health Insurance Stocks Are Sinking Tuesday
3. Bloomberg (2/4/26) – Anthropic AI Tool Sparks Selloff From Software to Broader Market
4. Morningstar (12/31/25) – Morningstar S&P 500 Index Attribution Report
5. Dividend (data as of 2/18/26) – Apple's Worst Day Ever (AAPL)
6. Economic Times (11/12/25) – Meta’s $307 billion meltdown: 4-day crash sparks fears of another 2022-style Metaverse collapse - The Economic Times
7. Morningstar (12/31/2025) – MSFT Total Return

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S&P 500® Index (S&P 500®) is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.