Navigating New Horizons: Graduates and Market Shifts in 2025

Graduates Rise Up

According to data from the National Student Clearinghouse Research Center, this year nearly 4 million students will graduate from college. It’s the largest group in history. A very similar number (3.8 million) of Americans will finish high school. These students are in a period of transition. Ideally, they can reflect on their considerable progress and prepare for the challenges ahead.

In my opinion, this annual springtime tradition sits comfortably within the natural order. There’s massive change in the landscape between April and May, as flowers and trees explode into new life. The northern hemisphere adds roughly two full hours of daylight during this multi month passage.

Seasonal Sector Shift?

The past few weeks have also brought a significant shift in capital markets. The implications at the index level have been dramatic. For example, since April 18^th (Standard April options expiration), the Nasdaq-100 Index (NDX®) has outperformed the S&P 500® by more than 500 basis points*. It’s a practical example of how major equity indices differ in material ways.

*Data as of May 22, 2025

What’s driving this shift under the hood?

The cleanest answer is sector performance. More specifically, technology and consumer discretionary came roaring back. These higher beta areas of the market had been dramatically underperforming relative to utilities and industrials, but they’ve narrowed the gap following their five-week rally. The visual below plots (GICS) sector level performance. The light blue line shows year-to-date (YTD) sector returns. The dark blue line plots returns over the past month.

While technology and consumer discretionary remain underwater YTD, they’ve been the best performers since the markets bottomed in April. To coin a phrase: “the last have become the first.”  The recent leadership is more reflective of the backdrop we’ve observed since late 2022.

The NDX® remains a broad-based measure of U.S. large-cap exposure. For example, Costco (COST) is consistently a top 10 component of the index. Pepsi Co. (PEP) tends to remain in the top 20 in market cap terms. The NDX® also includes Honeywell (HON), Starbucks (SBUX), Cintas (CTAS), Marriott (MAR), CSX Corporation (CSX), Paccar (PCAR) and others. The largest Nasdaq listed companies (ex-financials) covers materials, energy, industrials, utilities, health care and more.

However, the NDX® remains tilted toward technology and consumer discretionary when compared to the S&P 500 or other equity measures. For the sake of clarity, there are differences between the two when viewed through the sector lens. There are different industry classification approaches. The S&P 500 applies a GICS framework (Global Industry Classification Standard). The NDX® applies the Industry Classification Benchmark standard (ICB).

Arguably the most important distinction, given our focus on index performance, is the fact that GICS methodology distinguishes communication services (think: Alphabet and Meta) from the broader technology sector. ICB’s framework does not.

Source: S&P Dow Jones

Practical Application

Those idiosyncratic differences are not a primary interest for most investors. They tend to be concerned with longer-term performance and volatility. As of late May, the NDX® is higher by ~1% and the S&P 500 is lower by 50 basis points. So, thus far, 2025 performance has been virtually indistinguishable. However, the picture changes dramatically when you broaden your aperture. The NDX® has dramatically outperformed other equity measures over a variety of lookback periods.

Source: YCharts

The outperformance has been driven, in large part, by the tilt toward technology and consumer discretionary. Those sectors have been drivers for the global economy for decades and my expectation is that they will continue to lead.

Graduate… (to the NDX®)

As our younger readers move into their professional lives, they could be well served thinking about how they plan to direct their passive investment dollars. Those that are already actively using equity or ETF options might consider graduating into Nasdaq-100 Index Options (NDX®) or Nasdaq-100 Micro Index Options (XND®). It can be a very natural progression.

End users can gain exposure to a broad range of securities with a skew towards names like Microsoft, NVIDIA, Apple, Amazon and Alphabet. They can express a view about price performance, expected volatility or hedge underlying risk over very discrete time frames.

They can do so with relatively few contracts given the large notional value. These options are cash-settled and European-styled. As a result, they may require slightly less babysitting as expiration approaches and the risk of early exercise is eliminated. Domestic users may also benefit from favorable tax treatment for index products.

In closing, I’ll share my favorite commencement address ever. Twenty years ago, David Foster Wallace spoke to the graduating class at Kenyon. From my perspective there’s a lot of “capital T – truth” in his speech.

“It is about the real value of a real education, which has almost nothing to do with knowledge, and everything to do with simple awareness; awareness of what is so real and essential, so hidden in plain sight all around us, all the time, that we have to keep reminding ourselves over and over:

‘This is water.’”

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Originally Posted on May 28, 2025 – Navigating New Horizons: Graduates and Market Shifts in 2025