• The S&P 500 and Nasdaq are up only 6% and 5% year-to-date, respectively.
• But their sharp rebounds from 2025 lows show just how deep the early-year sell-off ran — and how aggressively buyers swooped back in.
• Communication services and industrials lead the sector pack (+12% YTD), while energy and health care lagged (–2%).
• Our picks for H2 include technology, utilities and energy (plus a tactical nod to quantum computing via QTUM).
• With equity indices at fresh highs and autumn volatility on the horizon, now is the time to lock in profits. 

Think of 2025 as the year of pivots — stocks tumbling on surprise tariff edicts, then vaulting skyward the instant those levies are mothballed. Each policy twist has felt like a page-turner in a thriller, keeping investors on the edge of their seats, never quite certain which way the plot will turn next.

Yet the truth resides in the raw data. In the first half of the year, technology roared back with renewed authority, health care stumbled amid patent headwinds and every sector carved its own trail through the tumult. Today, we sift through those H1 figures, discover where capital congregated and uncover the sectors poised to write the next chapter as we stride into the second half of the year. 

H1 Recap: From policy drama to sector performance

It may read as a modest ascent: 6% on the S&P 500 and 5% on the Nasdaq. But those figures mask a far more breathtaking rebound. From the market’s nadir in early 2025, both benchmarks have surged by nearly a third, painting a portrait of how swiftly sentiment can swing once uncertainty lifts. With that renaissance in full view, let’s turn our gaze to where capital truly converged across the major market sectors through mid-year.

Year-to-date returns in the sector exchange-traded funds

• Communication (XLC) +12%
• Industrials (XLI) +12%
• Technology (XLK) +10%
• Financials (XLF) +9%
• Utilities (XLU) +7%
• Basic Materials (XLB) +6%
• Consumer Staples (XLP) +3%
• Real Estate (XLRE) +3%
• Energy (XLE) -2%
• Healthcare (XLV) -2%

Communication Services and Industrials have led the charge, fueled by rebounding ad spending and a fresh wave of infrastructure contracts that have companies scrambling to scale up. Technology’s 10% gain — remarkable in the face of tariff uncertainty — speaks to the irresistible draw of AI innovation, cloud expansion and next-gen semiconductors. Financials (+9%) regained favor as concern about credit abated and investors circled back to rate-sensitive cyclicals, while Utilities (+7%) quietly impressed: beyond their steady dividends, they’re capturing double-digit growth in demand for power from the surging AI and data-center boom.

At the opposite end, energy and health care each shed 2%, weighed down by softer oil prices and looming patent cliffs. Consumer staples and real estate both barely eked out 3% gains. These stark sector splits not only reveal where momentum has clustered but also map the terrain for contrarian plays should policy shifts send another shock through the market.

H2 Outlook: Marrying momentum and longer-term trends

In charting our playbook for the second half of 2025, we’ve woven together two threads: The powerful currents of long-term outperformance and the immediate ripples of emerging catalysts. By marrying five-year total-return track records (highlighted below) with year-to-date momentum and overlaying our expectations for AI rollouts, rate dynamics and cyclical rebounds, we are targeting three sectors for outperformance in the second half of this year. Namely, the Technology, Energy and Utilities sectors. 

Five-year returns in the sector exchange-traded funds

• Technology (XLK) +140% 
• Financials (XLF) +128% 
• Energy (XLE) +127%
• Industrials (XLI) +114%  
• Communication (XLC) +97% 
• Basic Materials (XLB) +52% 
• Utilities (XLU) +41% 
• Consumer Staples (XLP) +37% 
• Healthcare (XLV) +33%
• Real Estate (XLRE) +16% 

Technology’s +140% gain over five years, paired with a 10% year-to-date advance, speaks volumes about its dominance, but the real story is what’s next. As companies race to weave generative AI into every workflow, semiconductor supply chains will stay under pressure and cloud spending is set to consume more than a quarter of IT budgets. Within this surge, we’re focusing on ON Semiconductor (ON) and Silicon Motion Technology (SIMO) for their cutting-edge hardware, IBM (IBM) for its hybrid-cloud AI platform, Rubrik (RBRK) for its data-management leadership, and naturally Nvidia (NVDA) as the unrivaled AI powerhouse.

Utilities might just be the dark-horse surprise in H2. A 41% five-year gain and a 7% YTD advance speak to the sector’s bedrock of regulated cash flows and steady dividends, but today a new catalyst is taking hold. As the AI economy accelerates, demand for power at data centers is jumping to the high-teens, and utilities with robust, high-capacity transmission grids are locking in decade-long deals with hyperscalers. Accordingly, we like NuScale Power (SMR) for its modular micro-reactors that promise clean, 24/7 baseload, and Oklo (OKLO) for its innovative fast-neutron reactors. These two names are poised to electrify the utility renaissance.

The downtrodden energy sector rounds out our top three. With trade frictions easing and global activity gaining traction, a perfect storm of OPEC+ supply discipline, robust Chinese industrial demand and Europe’s reopening could lift crude back above $80 per barrel. Meanwhile, natural gas has outpaced oil since last autumn, suggesting the oil patch may offer a tactical entry as prices recover. For pure-play exposure, we favor companies levered to the Permian Basin which stand to benefit from rising rig counts, strengthening differentials and superior free-cash-flow yields in the country’s most prolific shale play.

On top of the above, we’re still bullish on quantum computing, especially now that Nvidia is reportedly in advanced talks to invest in PsiQuantum, potentially valuing the photonic-qubit specialist near $6 billion. This marks Nvidia’s first direct hardware bet in quantum, and it signals a strategic shift toward the post-classical computing frontier.

Given the divergent hardware approaches and long timelines, we’d caution against single-stock speculation. Instead, a themed exchange-traded fund (ETF) like Defiance Quantum (QTUM) offers a diversified way to capture upside in software innovators and system integrators, helping to smooth out idiosyncratic risk while still tapping into what could be the next frontier in AI acceleration. If quantum lives up to its promise, QTUM stands to benefit handsomely as the industry moves from lab proofs to real-world deployments.

Autumn 2025: Preparing for a possible uptick in volatility

With the major market indices surging into record territory, the temptation to bank gains is hard to resist — and with good reason. Trimming positions at the summit isn’t about predicting the next peak; it’s about preserving the freedom to strike when markets wobble. Easing back on equities today equips you to swoop in on beaten-down names at far more compelling levels instead of chasing overpriced rallies.

Volatility has its own calendar, and tends to be seasonal. The summer — when the CBOE Volatility Index (VIX) drifts lower and trading desks thin out — almost lulls us into a false sense of calm, only for September and October to arrive with renewed turbulence. With autumn’s storm clouds gathering, now could be the right time to shore up cash reserves or deploy targeted hedges so you’re ready to invest capital at more attractive entry points when opportunities present themselves. 

Andrew Prochnow, Luckbox analyst-at-large, has traded the global financial markets for more than 15 years, including 10 years as a professional options trader.

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