As we near the end of the second quarter, we felt it would be interesting to take a dive into the performance of various equity market sectors this year and give an outlook for the remainder of the year.
We explore sector performance and weights for industries like Tech, Financials, and Energy, and discuss how to determine the most attractively valued for an investor’s portfolio.
Enjoy!
Returns & Valuations by Sector
The best place to begin, in our opinion, is the below slide from JPMorgan that provides a broad update on each equity sector. This data can help provide us with a set of expectations for how various sectors might perform in the near future.
J.P. Morgan. (2025, March). Returns and valuations by sector [Chart]. In Guide to the Markets – U.S. Data are as of May 30, 2025. J.P. Morgan Asset Management. Retrieved from https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/.
Sector Weights
First, let’s discuss the section in blue along the top of the slide. This section shows each sector’s weighting in various indexes. Here are a few highlights to note:
Tech
The tech sector has made a lot of headlines in recent years, with the ever-evolving landscape of artificial intelligence and Internet of Things (IoT). One interesting data point to note is how much the S&P500 and Russell 1000 Growth indices are concentrated in the tech sector: tech comprises 31.6% of the S&P500 and 47.6% of the Russell 1000 Growth index!
As a result, it is generally accepted that the tech sector is a significant indicator of how the S&P and the Growth indices will perform overall.
Financials
With interest rates staying higher for longer and the uncertain geopolitical environment putting a damper on M&A activity, the financial sector has been an interesting one to watch recently.
The financial sector is the largest proportion of the Russell 1000 Value index, at 23.7%. Expect this sector to play a larger role in the performance of the Value sector.
Energy
The energy sector is almost nonexistent in Growth, as it only makes up about 0.4% of the Growth index. However, it comprises 6.2% of the Value index. As a result, we expect energy prices, the timing of the global transition away from fossil fuels, and the geopolitical dynamics at play in this sector to continue to play a greater role in the performance of the Value sector than in growth.
Value vs Growth
The final data point that we find interesting to note is the overall concentration of the Value and Growth indices. Value is more diversified regarding sector concentration: the top three sectors (Financials, Industrials, and Healthcare), make up roughly 52% of the Value index. In contrast, the tech sector alone makes up 47% of the Growth index.
Sector Performance & Forward Valuations
Next, let’s review the year-to-date (YTD) performance and Forward P/E ratio sections of the slide for some more interesting data points. All of the year-to-date performance data is through May 31, 2025. For context, the broader S&P500 index is up 1.1% during that same timeframe.
- Utilities are the best performing sector, up 9.1%. This is not surprising, as this sector benefits from the greater energy consumption demands of A.I. infrastructure.
- Industrials (up 8.8%) and Consumer Staples (up 8.5%) are right on the heels as top performing sectors year-to-date.
- The worst performing sector so far this year is Consumer Discretionary, which is down 6.0%. This is not surprising, as this sector tends to underperform during periods of economic uncertainty.
- The tech sector is trading 48% higher than it’s long-term average, at 27.1x versus the long-term average of 18.3x. This reflects how far stock prices have risen in this sector and creates questions of how much more room there is for this sector to continue to outperform into the future.
- The Communications Services, Real Estate, Healthcare, and Energy sectors are all trading roughly in line with their long-term averages. No sectors are trading below their long-term averages at the time of this report.
Summary:
The tech sector has dominated headlines in recent years, and for good reason. However, as you can see from the analysis above, there are other sectors, such as Real Estate, Healthcare, and Energy, that are trading at prices more in line with long-term averages, representing some more attractive entry points (relative to other headline-dominating sectors) for patient investors with a long-term time horizon.
At Master’s, we understand that no one truly knows the future and we cannot know with certainty which sectors will outperform. As a result, we will continue to follow a well-researched, diversified, cost-conscious investment strategy. If you, or someone you know, would benefit from the services we provide, please do not hesitate to contact us, today!
