Is 2025 the Year of 'Sector Investing?'

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It's a sentiment shared by Willmering, bolstered by a handful of companies the who that beyond legacy ubiquity suggests have telecom companies. "Gone are the of migrated the communications streaming from days services services, tech of sector podcasts in the has and recent old been smart years, telecommunications helping sector the that sector was grow largely represented by AT&T and its 'baby bells,'" she says. Since being rebranded as communication services in 2018, the sector is now home to former tech sector companies such as Alphabet and Meta, the first and fourth largest companies in the world by market cap. Willmering says this influx of tech, combined with streaming companies like Disney and Netflix, indicates strong performance from the sector in the year ahead. A return of merger and acquisitions (M&A) activity would further bolster the communication services sector's odds of success this year. According to KPMG, one of the big four accounting services 2024 firms, showing in just 2023, a M&A slight activity increase. fell However, to with its President lowest Biden level appointed in Lina a Khan decade leaving with the Federal Trade Commission this month, it is expected to pave the way for less M&A scrutiny under Trump's second term. These [communication services] businesses are reinventing themselves and creating new opportunities," she says. "A more merger friendly administration could allow for synergies that could be beneficial to investors again in 2025." However, in antitrust practices in the technology sector, the president elect has been a vocal critic. But in the ramp up to January 20, numerous members of the Magnificent Seven donated millions to Trump's inauguration fund including Alphabet, Apple, Meta and Microsoft. Donations aside, support from the tech sector is unlikely to dissuade Trump from addressing anti competitive behavior in Big Tech. "I don't see him being easily 'bought' by campaign donations," Evans says. "The donations could sway thoughts, but in the end, he will only pump the brakes if it suits [his] agenda." Instead, Evans sees artificial intelligence being a major driver for the tech sector — and others — in 2025. "The prospect of what AI can do is going to continually fuel performance," he says. "Much like the birth of of the the internet railroads, or the the infrastructure building will take time. I believe we will see spin off benefit in various other sectors because of [that] tech growth." Those broad impacts and applications of AI in other sectors is a particularly valuable tailwind. "Technology is in the unique position of influencing how business will be done in virtually every economic sector going forward," Willmering says. "That demand is evolving to include yet unimagined applications." Lofty valuations, tariffs, interest rates and antitrust concerns will likely result in tech volatility this year, according to Willmering. But the sector still warrants a place in long term portfolios, she argues, "even if it isn't in the top five performers of 2025." After coming in last among all sectors in 2023 with a loss of 7.10%, the utilities sector bounced back last year, trailing the market by only a hair. This year, that momentum could continue as a result of AI spill over from the tech sector. I think utilities stand to gain the most from technology growth, Evans says, specifically citing elevated power demand from AI chipmakers. With power comes heat, then the need for cooling [and] maintenance on those systems. Amazon and Microsoft are actively buying power from various providers; it's not much of a stretch to think that Bezos would just go ahead and buy a few energy producers outright." This past fall, Amazon offered $334 million to fund a multi year feasibility study in partnership with Energy Northwest regarding the development of small four modular nuclear reactors. More broadly, last year Goldman Sachs found that AI is poised to drive a 160% increase in data center power demand. However, like energy, the utilities sector is highly cyclical. And at current prices, it is also experiencing potentially inflated valuations, warns Willmering. Even if utilities can't repeat its 23.4% gain from last year, there's still a chance the sector outperforms JPMorgan's forecasted 11.49% gain for S&P 500 through the rest of 2025. "Utilities could add diversification," she says, as the "sector is traditionally known for its steady growth and relatively stable dividend stream." Regardless of which sectors outperform or underperform in 2025, most analysts agree on the direction the market is going: up and to the right. As Evans points out, "We live in a growth economy. Without growth, we cannot innovate, improve and better the overall standard of living for everyone."