The best sector this year is not tech — it’s a group of stocks riding Trump’s trade deals

The industrials sector has emerged as the leading S&P 500 performer this year, climbing over 16% and significantly outpacing the broader market's sub-9% gain, as well as the technology and communication services sectors. This outperformance is driven by specific companies and subsectors rather than a broad-based recovery, benefiting from continued economic strength and targeted demand. Key contributors include GE Vernova, which has surged nearly 90% due to high demand for power infrastructure from AI data centers, and GE Aerospace, up over 60% on robust demand for aircraft engines and repairs. Other power equipment providers like Johnson Controls and Quanta Services have also reached all-time highs, underscoring how these targeted industrial segments are thriving despite potential tariff-related headwinds.

Analysis

The industrials sector has displaced technology as the market leader in 2025, with the Industrial Select Sector SPDR Fund (XLI) climbing over 16%, significantly outpacing the S&P 500's sub-9% gain. This outperformance is not a broad-based recovery but is highly concentrated in specific subsectors and companies, driven by powerful secular tailwinds. A primary catalyst is the immense power demand from the artificial intelligence infrastructure buildout, which has propelled GE Vernova (GEV) to a nearly 90% year-to-date surge, making it a top S&P 500 performer. This theme also benefits power equipment providers like Johnson Controls (JCI) and Quanta Services (PWR), both of which have reached all-time highs. Concurrently, the aerospace subsector is experiencing robust growth, with GE Aerospace (GE) soaring over 60% due to strong demand for new and replacement aircraft engines as carriers operate older fleets for longer. While potential headwinds from U.S. tariff policy exist, their impact is currently being mitigated by these strong, specific demand drivers and by expectations that key industries like aerospace may be spared from significant levies.

Key Decisions for Investors

• Investors should consider overweighting exposure to industrial companies directly benefiting from the AI infrastructure buildout, such as GE Vernova (GEV), Johnson Controls (JCI), and Quanta Services (PWR), which are showing clear fundamental tailwinds.
• Given the aerospace subsector's strong performance, continue to hold or accumulate positions in leaders like GE Aerospace (GE), but closely monitor U.S. trade policy for any signs of new tariffs that could disrupt the industry's favorable conditions.
• Recognize that the sector's strength is concentrated in a few key themes and names, suggesting a targeted, stock-specific approach is more prudent than a broad investment in the general industrials ETF (XLI).
• Given the outperformance relative to the technology sector, it may be time to rebalance portfolios to reflect the leadership rotation towards these specific industrial segments.