Sectors to watch in 2025: Opportunities and risks for long-term investors

Investing through a shifting economic and policy backdrop

Approaching the halfway point of 2025, investors face an environment where macroeconomic direction is unclear and returns are concentrated in a narrow set of stocks. "This doesn’t feel like a rising tide lifting all boats kind of year," said Elyse Ausenbaugh, Head of Investment Strategy, J.P. Morgan Wealth Management. Instead of counting on broad market growth, many are reassessing sector exposure to better align with the current policy environment and economic trends.

Recent shifts in government spending priorities, global security concerns and the spread of new technologies are influencing where people are putting their money. Themes such as artificial intelligence (AI), easing of financial regulations, and increased focus on national and energy security are touching multiple sectors, pushing investors to think more carefully about where future returns might come from.

Technology: More than just Big Tech

AI is no longer a niche story. As the cost of this technology has decreased, corporate adoption has doubled, noted Abigail Yoder, Equity Strategist at J.P. Morgan. This trend is expanding across industries, with companies adopting AI to enhance productivity, streamline operations and reduce costs. While large tech firms remain prominent in portfolios, it’s increasingly the supporting players, like those enabling cloud infrastructure, enterprise software and data security, where investors are focusing their attention.

Financials: More flexibility, more potential

Regulatory easing is shaping investor expectations for the financial sector. “It opens up the ability for larger banks to lend to the economy. They have $200 billion in excess capital on their balance sheet, and they have more options with what to do with it,” Yoder said, referring to major U.S. banks. That capital could fuel new lending, acquisitions or capital returns to shareholders. If banks are allowed to take a more active role in capital deployment, the sector may see more consistent performance.

Utilities: Stable with growth potential

Utilities are typically viewed as conservative holdings. But growing electricity demand, especially from AI data centers and infrastructure upgrades, is shifting that view. The sector, which has historically grown earnings by about 5% per year, could now accelerate to 8%, according to Yoder. This change is prompting investors to look at utilities as a potential source of both income and long-term growth.

Industrials and infrastructure: Building for security

Spending on national resilience is supporting a wide range of industrial businesses. It’s not just defense – it’s energy security, cybersecurity and supply chain resilience. Governments are prioritizing infrastructure and logistics upgrades, and companies that support those initiatives are getting more attention. From equipment providers to engineering firms, these areas are increasingly tied to broader policy agendas.

Outside the U.S., similar themes are playing out. In Europe and Japan, government investments in energy security, industrial resilience and digital infrastructure are expected to drive demand for regional firms. This has made international industrials and infrastructure providers more relevant for long-term portfolios. Additionally, if foreign currencies strengthen against the dollar, that could enhance returns for U.S.-based investors holding international assets.

Sectors that may face headwinds

Health care, which has often been seen as a safe haven, is under pressure. It has been the worst-performing sector so far this year, and Yoder expects that may not change in the near term. New drug pricing rules, concerns over public health funding and international trade policies are all contributing to lower investor confidence. While some areas, such as obesity treatments, are growing, the broader sector outlook remains too uncertain to get excited about.

Additionally, energy companies are grappling with potential oversupply of oil. With both U.S. and global producers planning more output, oil prices may stay subdued unless demand meaningfully exceeds expectations with an acceleration in the global economy.

The bottom line

Selectivity, diversification and staying invested all matter this year. The trends shaping 2025 suggest it’s less about broad exposure and more about identifying areas with clearer earnings visibility and lighter policy headwinds.

Combining exposure to growing areas like AI, infrastructure and security with more stable sectors such as utilities may help investors build portfolios that are better equipped for uncertainty.

Looking internationally could also support this balance. In markets like Europe and Japan, increased government investment is creating new demand in industries that often don’t get as much attention in the U.S.

Rather than trying to anticipate short-term market direction, the current environment may reward investors who stay grounded in longer-term themes and evaluate where both public and private capital are headed.

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