- UBS sees a handful of stock sectors posed to gain going into 2025.
- The bank says tech will continue to see outsize growth, while financials will benefit from Trump's agenda.
- Utilities, meanwhile, are the best defensive sector amid strong AI and EV demand, the analysts say.
Investors should keep a close eye on stocks in a few key sectors heading into next year, analysts at UBS wrote in a note to clients.
The analysts, in a Monday note, recommended investors allocate to tech, financials, industrials, and utilities stocks going into 2025. They point to the sectors' strong positioning under current market conditions and amid expectations for pro-business policies under President-elect Donald Trump.
Tech remains a top sector pick, and will outpace the gains in the broader market next year, up a projected 19.8% in 2025 compared to 9.4% for the rest of the market, the analysts said.
Their call comes as tech has propelled the S&P 500's bull rally to new heights in recent months amid the AI boom, accounting for nearly 35% of the S&P 500's profits in the last year. Some strategists have voiced concerns of a brewing market bubble, but the UBS analysts remain bullish.
They also remain positive on financials, which they said will benefit the most from Trump's pro-business policies. Trump's deregulatory stance and proposed corporate tax cuts are generally expected to boost deal activity and earnings growth, fueling gains for financial stocks.
Industrials stocks are also in good shape heading into 2025, the analysts wrote. They said the sector looks more attractive than discretionary stocks, even though those stocks led November's gains with a 13.3% rise. The analysts downgraded discretionary stocks, excluding Amazon, to neutral.
Utilities, meanwhile, are the best defensive sector amid strong energy demand from AI and electric vehicles, the analysts said. Utilities have outperformed in recent months, with the MSCI ACWI Utilities index up around 20% year-to-date as AI data centers have driven up US electricity usage.
Meanwhile, the analysts are neutral on healthcare and underweight on energy, materials, staples, and REITs.
The analysts' call comes as US stocks have rallied after Trump's US election win, returning 5.9% in November. Cyclical sectors fared the best amid the shift to risk-on as traders see Trump's policies providing a tailwind for stocks.
"Cyclical sectors outperformed both TECH+ and non-Cyclicals in November, led by Discretionary, Financials, Industrials and Energy. Within sectors, the most economically sensitive stocks, and those most exposed to tail risks (sensitivity to high yield spreads) outperformed," the analysts said.