World Stock Watch

Cyclical Stocks Poised for a Breakout Year

As investors look to 2025, one sector is gaining attention for its potential to outperform the broader market. According to Bank of America’s top US stock strategist, Savita Subramanian, cyclical stocks are primed for strong gains next year.

The Perfect Storm for Cyclicals

Subramanian believes that a combination of factors will create a perfect storm for cyclical stocks to thrive. These sectors, which tend to perform well when the economy is growing, include commodities, construction, and infrastructure. As investors shift their focus to the “old economy,” Subramanian expects to see significant upside in these areas.

Manufacturing: A Sector to Watch

In particular, Subramanian is bullish on manufacturing, despite the sector’s contraction over the past two years. She cites several tailwinds that will drive growth, including reshoring, the need to build out the power grid and create new infrastructure, and tech companies’ plans to invest in artificial intelligence and data-center creation. These investments will lead to a significant increase in manufacturing spending, Subramanian predicts.

A Broad Rally Ahead

Subramanian’s optimism extends beyond cyclical stocks. She expects the S&P 500 to rise another 10% in 2025, reaching 6,666. This prediction is supported by other firms, such as Morgan Stanley, which has issued a bullish call on cyclical stocks, particularly in the financial sector.

Hedge Funds Jumping on the Bandwagon

Hedge funds are also betting big on cyclical stocks. According to Goldman Sachs, these funds loaded up on cyclical stocks in the third quarter, with a focus on financials. The iShares S&P 500 Financials Sector UCITS exchange-traded fund has already seen a 36% gain this year, outpacing the benchmark index’s 27% rise.

The Stars Aligning

With the economy poised for growth and investors shifting their focus to the “old economy,” the conditions are ripe for cyclical stocks to shine. As Subramanian notes, “I think all of this is creating the perfect storm for cyclicals to outperform in a really material way over the next several years.”