As we enter September 2025, the performance of U.S. sectors and bond funds paints a picture of an economy that is resilient yet uneven. Sector ETFs show industrial and technology leadership, utilities strengthening as a defensive play, and health care and energy struggling. Meanwhile, bond returns highlight both corporate resilience and rate-related stress.
This post breaks down 2025 performance trends, explains what they mean for the economy, and outlines a balanced portfolio strategy for investors heading into year-end.
2025 Performance Highlights
Cumulative Returns (Jan – Aug 2025)
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Industrials (XLI): +16.06%
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Technology (XLK): +13.25%
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Utilities (XLU): +12.96%
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Financials (XLF): +12.49%
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Materials (XLB): +10.74%
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Homebuilders (XHB): +9.60%
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Energy (XLE): +7.22%
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7-10Y Treasury (IEF): +6.34%
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Inv. Grade Corp Bonds (LQD): +5.55%
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Consumer Staples (XLP): +4.00%
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Consumer Discretionary (XLY): +3.78%
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1-3Y Treasury (SHY): +3.54%
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20+Y Treasury (TLT): +1.69%
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Health Care (XLV): +0.76%
August 2025 Snapshot
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Winners: Utilities (+4.93%), Technology (+3.63%), Homebuilders (+3.48%)
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Laggards: Health Care (-3.26%), Consumer Staples (-1.49%), Long Treasuries (-1.05%)
Annualized Returns (1-Year)
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Leaders: Consumer Discretionary (+24.92%), Financials (+21.42%), Utilities (+21.20%), Technology (+20.80%), Industrials (+20.57%)
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Laggards: Health Care (-11.36%), Energy (-3.38%), Homebuilders (-2.17%), Long Treasuries (-6.37%)
What This Means for the U.S. Economy
1. Growth Sectors Driving the Market
Industrials and technology are clear leaders, supported by infrastructure spending and AI-driven innovation. The Consumer Discretionary surge (+24.92% 1-year) underscores consumer resilience, though 2025 YTD gains are modest.
2. Defensive Rotation in Play
Utilities (+12.96% YTD) and Financials (+12.49% YTD) highlight a defensive tilt, suggesting investors are hedging against late-cycle risks or positioning for rate cuts benefiting banks.
3. Weak Spots to Watch
Health Care (-11.36% 1-year) faces drug-pricing and biotech volatility. Energy (-3.38% 1-year) reflects commodity swings, while homebuilders (-2.17% 1-year) show sensitivity to mortgage rates.
4. Bond Market Signals
Short-term Treasuries (SHY, +4.30% 1-year) outperform long-term (TLT, -6.37%), pointing to yield curve inversion and expectations of Fed easing. Investment-grade corporates (LQD, +5.55% YTD) suggest corporate credit remains healthy.
5. The Big Picture
The U.S. economy in 2025 is resilient but cooling—with selective growth in tech and industrials, defensive strength in utilities, and bond market signals of a softer policy stance ahead.
Building a Balanced Portfolio for 2025
Here’s a sample $100,000 allocation, balancing growth, defense, and bonds for the current environment:
| ETF | Sector/Asset | Allocation | Amount ($) | Rationale |
|---|---|---|---|---|
| XLY | Consumer Discretionary | 15% | 15,000 | Strong 1-year momentum (24.92%). |
| XLU | Utilities | 15% | 15,000 | Defensive strength; August leader. |
| XLK | Technology | 10% | 10,000 | AI-driven growth. |
| XLI | Industrials | 10% | 10,000 | Infrastructure-driven gains. |
| XLF | Financials | 10% | 10,000 | Resilient earnings, rate tailwinds. |
| LQD | Inv. Grade Corp Bonds | 10% | 10,000 | Stable income, strong balance sheets. |
| SHY | 1-3Y Treasury | 10% | 10,000 | Short-term safety amid rate cuts. |
| IEF | 7-10Y Treasury | 10% | 10,000 | Balance between risk and yield. |
| XHB | Homebuilders | 10% | 10,000 | Housing recovery potential. |
Expected Return: ~10–12%
Strategy: Rebalance quarterly to capture rotation.
Conclusion
2025 has been a year of divergence across U.S. sectors and bonds. Industrials and tech continue to power growth, utilities and financials offer stability, while health care and energy struggle. Bonds show a preference for short-duration exposure, consistent with expectations of Fed rate cuts.
A barbell-style portfolio—mixing growth sectors with defensive plays and a healthy bond allocation—remains the best way to navigate this mixed economy.
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