Sector ETFs Outperform SPY—Underneath the Market’s Rotation
Sector ETFs like the Healthcare Select Sector SPDR Fund (XLV) and Consumer Staples Select Sector SPDR Fund (XLP) are among the year’s top performers.
The S&P 500 has slipped 2% in 2025, flashing warning signs of a shaky market. Yet, peel back the headline number and a more nuanced picture emerges: Most sectors are quietly holding their own. Only three of the index’s 11 sectors are underwater, while nine are outperforming the benchmark—a sign that beneath the surface, there is resilience.
Defensive corners like healthcare and consumer staples are stealing the show, as is the interest-rate-sensitive real estate sector. Tracked by Sector ETFs like the Healthcare Select Sector SPDR Fund (XLV), Consumer Staples Select Sector SPDR Fund (XLP) and Real Estate Select Sector SPDR Fund (XLRE), these sectors rank among the year’s top performers.
What’s driving the charge?
Leading Sector ETFs
It's a cocktail of falling interest rates and jittery investor sentiment. As borrowing costs drop, real estate gets a lift—cheaper loans fuel property companies. Meanwhile, healthcare and consumer staples thrive as nervous money piles into stocks that are more insulated from economic turbulence.
Contrast that with the year’s losers: technology and consumer discretionary. Tech, once the market’s golden child, is cooling off after last year’s AI-fueled surge. Nvidia Corp. (NVDA), a heavyweight in the Technology Select Sector SPDR ETF (XLK), is down 14% this year, single-handedly dragging the sector lower.
Consumer discretionary stocks, meanwhile, are buckling under fears of a spending slowdown and trade tensions, with the potential for a tariff-fueled hit to consumer spending.
Stealth Rotation
This split isn’t just noise. The S&P 500’s decline masks a rotation under the surface: Investors are embracing steadier bets. Falling rates are part of the story but so is a creeping unease about growth. And if economic clouds darken, this flight to safety could gain steam.
What’s next? The market’s divergence hints at a tug-of-war between hope and caution. If rates keep sliding and uncertainty festers, defensive sectors might extend their lead. But a sudden growth spark—or a tech rebound—could flip the script.
For now, the S&P 500’s surface-level stumble belies an important trend: Not all sectors are sinking, and the ones that aren’t are keeping the market from falling even further under water.
For more on sector trends, dig into etf.com’s Sector ETF topics page. 
Source: Bloomberg
