MW From worst to first: last year's stock-market laggards see strong start to 2025

By Joseph Adinolfi

Energy stocks, materials and healthcare are all climbing while the broader market has struggled

The U.S. stock market has been turned on its head in the early days of January.

Megacap technology stocks like Nvidia Corp. $(NVDA)$, which dominated the market in 2023 and 2024, have struggled. Meanwhile, some of last year's worst-performers - energy stocks, materials and healthcare - are all off to a strong start.

That is particularly true for the S&P 500 energy sector. It is the top-performing sector-year to date, with the Energy Select Sector SPDR Fund XLE, an ETF that more or less tracks the S&P 500 energy sector, up 5.4% through Monday's close, according to FactSet data.

Healthcare stocks were in second, up 2.8% year-to-date, while the materials sector - last year's worst performer - was up 1.2% through Monday. Both the healthcare Select Sector SPDR ETF XLV and the Materials Select Sector SPDR ETF XLB have seen similar performance.

All three sectors were among the worst performers in 2024. Materials stocks were the worst performers, down 1.8% for the year. Followed by healthcare, which registered a 0.9% gain. Real-estate stocks followed, with a gain of 1.7%.

The S&P 500, by comparison, has fallen 0.8% so far this year through Monday, as rising global bond yields have taken a toll on stocks. Interest-rate sensitive sectors like REITs and consumer staples have been hit especially hard.

Rising oil and natural-gas prices have helped to boost energy stocks. U.S.-traded crude-oil futures were up 3% in early going on Tuesday, pushing crude to nearly $79 a barrel, the highest since August. Natural-gas prices have mostly moved sideways in 2025 after a strong run-up in late 2024 as traders bet that colder temperatures expected in the U.S. and Europe would help boost demand.

Energy stocks famously outperformed in 2022, while stocks and bonds largely sold off, after the start of the war in Ukraine sent oil prices briefly surging above $130 a barrel.

Meanwhile, healthcare and materials stocks appeared to rebound after both sectors struggled in 2024, according to Nicholas Colas, co-founder of DataTrek.

Analysts haven't quite warmed to any of these sectors yet. Sevens Report Research had all three sectors classified as "underperform" in a recent report. A team of analysts at Bank of America said last year that they were bullish on materials stocks, arguing that earnings were poised to rebound after a sharp contraction.

But at the very least, it looks like investors will have to wait another quarter for that rebound to arrive. The latest numbers from FactSet showed Wall Street analysts expected earnings for energy stocks and materials had contracted during the fourth quarter. Healthcare, on the other hand, is expected to see double-digit growth.

Energy stocks have seen the biggest downward revision to earnings estimates since the fourth quarter, with analysts lowering their expectations by more than 15 percentage points.

U.S. stocks were off to a strong start on Wednesday, with the S&P 500 SPX up 0.4% at 5,861. A softer-than-expected reading on December PPI helped weigh on Treasury yields, giving stocks a boost.

The Nasdaq Composite COMP was up 0.5% at 19,191, while the Dow Jones Industrial Average DJIA was up 152 points, or 0.4%, at 42,440.

-Joseph Adinolfi

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January 14, 2025 10:02 ET (15:02 GMT)

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