The Sector That Outperformed All Others at the Start of 2025

The industrial sector, represented by the Industrial Select Sector SPDR Fund (ticker: XLI), stands out at the top of the performance charts in the U.S. equity market during 2025. With a cumulative return of approximately 10.33% as of June 6, 2025, the XLI fund is outperforming major benchmark indices such as the S&P 500, as well as traditional leading sectors like healthcare, energy, and technology. This marks a significant trend, indicating a shift in market sentiment and the emergence of the industrial sector as the new center of gravity in the American stock market.

Strong Performance Over Time – A Sustainable Trend or a Temporary Spike?

In recent months, the XLI index has posted impressive returns: over the past three months alone, it delivered a 9.55% gain, with May alone accounting for an 8.8% rise. Despite a sharp correction in late March and early April, during which the index lost nearly 20%, the industrial sector has rebounded and regained stability. Today, XLI trades over 10% above its level at the beginning of the year (YTD). In contrast, the S&P 500 rose about 6.9% over the same period, while the healthcare (XLV) and energy (XLE) sectors are showing weak quarterly performance, including declines.

Structure of the Industrial Sector: A Combination of Stability, Scale, and Corporate Strength

One of the key factors behind XLI’s success lies in its broad and diverse industrial composition. The fund currently includes 78 stocks of leading American companies, with an average market capitalization exceeding $100 billion – a threshold indicating financial strength and operational resilience.

Sector-wise, the fund’s internal allocation highlights the dominance of traditional, capital-intensive industries: aerospace and defense account for the largest share at 25.6%, followed by machinery at 18.1%, ground transportation at 10.7%, and electrical and industrial equipment at 9.9%. This composition reflects high exposure to infrastructure projects, defense development, and logistics upgrades.

At the company level, the index is anchored by established global players: General Electric (GE) holds a 6.17% weight, followed by RTX Corporation (formerly Raytheon) at 4.16%, Caterpillar (CAT) at 3.8%, and Boeing (BA) at 3.55%. These companies are characterized by high profitability, cross-border operations, and pricing power – even in a persistently inflationary environment.

This structure gives XLI a solid foundation for growth – not only due to historical performance, but also considering future forecasts.

Growth Forecasts and Market Valuation

According to data from FactSet and SSGA, the expected annual EPS growth for XLI constituents stands at 11.8% between 2025 and 2028. The forward price-to-earnings (P/E) ratio ranges between 24.4 and 24.6 – a typical premium for a sector with stable, non-speculative growth. The average PEG ratio is below 2.0, suggesting fair valuation relative to expected growth potential.

Macro and Structural Tailwinds for the Industrial Sector

Behind the strong performance lie significant macroeconomic and structural trends:

Government Stimulus Policies: The Biden administration continues to promote large-scale investments in infrastructure and domestic supply chains.

Reshoring Processes: Manufacturing is shifting back to the U.S. due to geopolitical tensions, particularly with China.

Adoption of Advanced Technologies: The integration of automation, robotics, and industrial AI is improving productivity and efficiency.

Over 65% of XLI components are trading above their 200-day moving average, indicating a stable trend rather than a short-term spike. The average daily volatility of XLI stands at 1.02%, significantly lower than that of technology indices (1.37%), demonstrating greater stability and resilience.

Comparison with Other Sectors – A Clear Advantage for Industrials

The healthcare sector (XLV) is down 1.1% year-to-date in 2025, while the energy sector (XLE) is characterized by high volatility, with sharp ups and downs. Even the technology sector (XLK), despite support from AI-related stocks, fails to match the industrial sector’s stability and leadership, which benefits from a combination of government incentives and consistent corporate performance.

Looking Ahead: Will XLI Maintain Its Lead in the Second Half of 2025?

Maintaining leadership depends on several key factors:

Continued significant federal investments in infrastructure and manufacturing innovation.

Stability in the Federal Reserve’s monetary policy, particularly keeping interest rates unchanged.

Sustained positive business sentiment in global markets, especially in Europe and Asia – key export destinations for U.S. industry.

Quarterly reports from major companies such as GE, CAT, and Boeing are expected to serve as important indicators. Analyst forecasts for Q2 point to an average 7.4% increase in operating profitability compared to the same period in 2024.

Conclusion: Returns Built on Solid Fundamentals, Not Just Short-Term Sentiment

XLI’s strong return is not a fleeting phenomenon. Organic growth, structural support from government policy, and positive macroeconomic trends create a mix that attracts both institutional investors and long-term traders. The sector combines healthy growth with controlled risk, and its valuation reflects real future potential – not merely a wave of short-term optimism. While volatility will continue to affect the market, for now, the industrial sector is leading the U.S. stock market in 2025 – and it’s no coincidence.