As markets try to look through the blizzard of policy changes flowing out of Washington, the crowd has shifted its preferences considerably in recent weeks based on a sector lens. Using a set of ETFs as proxies, healthcare is now the leading sector performer year to date, taking the lead from financials, based on prices through Wednesday’s close (Feb. 26).
The Health Care Select Sector SPDR ETF (NYSE:XLV) is up a strong 7.5% so far in 2025, comfortably ahead of the rest of the field. Meanwhile, consumer discretionary stocks (XLY) have taken a hit recently and are now the worst-performing sector in 2025 with a 3.9% loss.
Note, too, that the tech sector continues to weaken. The Technology Select Sector SPDR® Fund (NYSE:XLK) is now slightly underwater for the year.
Consumer Discretionary Stocks Slide
The weakness in consumer discretionary shares is considered a reflection of growing concerns for the economic outlook. Weighing on the sector are worries on the outlook for inflation, driven in part by President Trump’s plans for raising tariffs.
This week’s release of the Conference Board’s Consumer Confidence Index for February highlights the change in expectations. The benchmark in February posted its largest monthly decline since August 2021.
Yesterday I discussed the possibility that markets are beginning to reassess the outlook for Trump 2.0 policies.
“If inflation is too sticky, [Trump] may not be able to follow through on the full implementation for fear of exacerbating the problem,” Paul Stanley, chief investment officer at Granite Bay Wealth Management, tells Yahoo Finance.
Scott Lincicome, vice president of general economics and trade at the Cato Institute, adds:
“If the market really tanks I think you would see Trump respond. The biggest tariff threats would fade into the background and you would see more focus on getting some sort of tax package across the line.”