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In February 2025, U.S. equity markets reflected general unease over an unpredictable future. Worries about the probability of tariffs and their impact on growth and inflation weighed on the minds of investors who also had to contend with weaker economic data and questions about the sustainability of mega-cap tech earnings. Against this backdrop, the S&P 500^® exhibited striking bouts of intraday volatility yet finished the month in negative territory. In Exhibit 1, we show February performance of The 500™ along with each of its 11 component GICS sectors. February was the fourth month in a row that the sector spread (the difference between highest- and lowest-performing sectors) reached double digits, at 12.0%. Consumer Discretionary, Information Technology and Industrials finished the month trailing The 500, which itself dropped 1.3%. But beyond those three sectors, the other eight outperformed, exhibiting strength among traditionally defensive segments.

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Headwinds and tailwinds affecting each sector in January generally persisted in February, as Consumer Discretionary and Information Technology extended their previous month’s underperformance, while eight other sectors outperformed The 500 in February, and nine sectors surpassed the broad benchmark YTD (see Exhibit 2). Industrials was the only sector that trailed slightly in February yet maintained excess performance YTD.

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In a previous blog, we kicked off sector analysis in 2025 with a review of recent research detailing the performance of two blends of indices, each comprising traditionally cyclical and defensive sectors. Bucketing sectors into defensive and cyclical blends based on their risk characteristics and tendencies to outperform during rising or falling markets can allow for rational tilts based on owning sectors that offer relatively better performance in each environment.

As a reminder, we use the same two approaches below to understand sector performance YTD.¹

• Cyclical Blend: An equal-weighted combination of five cap-weighted cyclical sectors (Information Technology, Financials, Materials, Consumer Discretionary and Industrials), rebalanced monthly.
• Defensive Blend: An equal-weighted combination of five cap-weighted defensive sectors (Utilities, Energy, Consumer Staples, Health Care and Communication Services), rebalanced monthly.

Exhibit 3 illustrates the hypothetical performance of each approach YTD through February 2025, showing both the widening outperformance margin of defensive sectors along with the resilience of equally weighting cyclical sectors, as both the defensive and cyclical blends outperformed The 500.

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Although two months of 2025 are in the rearview mirror and, in many ways, the road ahead remains unclear, the performance of S&P 500 sectors sheds some light on how investors view prospects for different segments of the economy and provides a useful framework for making thoughtful tilts in preparation for whatever comes next.

¹ Cyclical and defensive blends are comprised of the top five and bottom five sectors as ranked by historical beta and volatility. Real Estate, ranked in the middle of the 11 S&P 500 sectors, is excluded from this analysis.

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