Why Non‑Tech Sectors Could Be the S&P 500’s Secret Engine: What Investors Must Watch

• Non‑tech earnings are accelerating faster than tech, providing fresh support for the S&P 500.
• Financials, healthcare and industrials showed the strongest EPS growth last year, driven by solid economic momentum.
• Tech remains high‑growth but may cede relative performance to more cyclical sectors through 2026.
• Historical cycles suggest a sector rotation can extend market rallies – timing is crucial.
• Actionable bull and bear cases give clear entry points for portfolio rebalancing.

Most investors overlook the quiet winners – and that’s a costly mistake.

Why the S&P 500’s Non‑Tech Sectors Are Gaining Momentum

The S&P 500 is often synonymous with big‑tech, yet recent earnings data tells a different story. Financials, healthcare and industrials posted the steepest earnings‑per‑share (EPS) growth in 2023, outpacing the technology index by a noticeable margin. EPS, the profit allocated to each share, is a core driver of stock valuation; when it climbs faster than the market average, it lifts the sector’s price‑to‑earnings multiple and, by extension, the index itself.

Thomas Mathews of Capital Economics points to “firm economic growth” as the catalyst. As the U.S. economy expands, credit demand, consumer spending and capital expenditure rise – all variables that directly feed financials, health‑care services and industrial manufacturers. Unlike many tech firms whose revenues hinge on discretionary spend and rapid innovation cycles, these sectors are “more sensitive” to macro‑economic trends, meaning they react strongly to real‑GDP growth, interest‑rate environments and fiscal policy shifts.

How Financials, Healthcare, and Industrials Outperformed in 2023

Let’s break down the numbers. Financials reported an EPS growth of roughly 12% YoY, powered by higher loan volumes and tighter spreads as the Federal Reserve began a measured rate‑cut cycle. Healthcare, particularly the services and equipment subsectors, saw EPS accelerate 10% after a surge in elective procedures and aging‑population demand. Industrials posted a 9% EPS rise, buoyed by a resurgence in manufacturing output and logistics spending, especially as reshoring trends gained traction.

These figures contrast with the technology sector’s 7% EPS increase, which, while still healthy, reflects a deceleration from its double‑digit peaks during the pandemic‑driven digital boom. The divergence suggests that, if the economy maintains its growth trajectory, non‑tech sectors could become the new engine sustaining the S&P 500’s upside.

Tech’s Resilience vs. Non‑Tech Growth: What the Numbers Reveal

Don’t mistake this analysis for a tech‑kill. Mathews acknowledges that the tech sector “maintains its high growth” and is likely to outperform the broader market through 2026. The key nuance is relative performance. While tech may continue to generate impressive absolute returns, its growth rate is expected to normalize, narrowing the gap with cyclical sectors.

From a valuation standpoint, this creates a “spread” opportunity: investors can capture higher earnings growth in financials, healthcare and industrials at more attractive price‑to‑earnings ratios, while still holding a core tech position for its innovation premium. The spread is especially appealing if the market re‑prices expectations for a softer tech earnings trajectory.

Historical Parallels: When Non‑Tech Led the Market Rally

History offers a template. In the early 2000s, after the dot‑com bust, the S&P 500’s rebound was driven largely by financials and industrials, as the economy recovered from the recession. Similarly, the post‑2008 recovery saw health‑care and financials providing the bulk of earnings momentum before the tech surge of the 2010s. In each case, a sector rotation away from over‑valued tech created a more balanced, sustainable rally.

Those cycles teach two lessons: first, that sector rotation is a natural market correction mechanism; second, that timing the rotation can add a significant alpha boost. For today’s investors, the signal is clear – the non‑tech earnings surge is not a temporary blip but a structural shift linked to real‑economy fundamentals.

Investor Playbook: Bull and Bear Scenarios

Bull Case: If GDP growth steadies above 2.5% and the Federal Reserve continues easing, financials, healthcare and industrials will likely sustain double‑digit EPS growth through 2025. In this scenario, allocate 40% of equity exposure to these sectors via diversified ETFs or select high‑quality stocks (e.g., JPMorgan, UnitedHealth, Caterpillar). Maintain a 30% tech core for upside, and keep 30% in defensive assets (consumer staples, utilities) to hedge against volatility spikes.

Bear Case: A sudden tightening of monetary policy, a slowdown in consumer credit, or a geopolitical shock could blunt the earnings engine of cyclical sectors. In that environment, tech’s relative resilience becomes a defensive moat. Shift 30% of the portfolio into high‑margin, cash‑generating tech firms (e.g., Microsoft, Nvidia) while trimming exposure to the most rate‑sensitive financials. Preserve liquidity to capitalize on potential sector dips.

Regardless of the path, the overarching strategy is to stay sector‑balanced, monitor EPS growth trends quarterly, and adjust weightings as macro data evolves. The S&P 500’s next leg may be less about a single megacap and more about a coalition of non‑tech performers powering the index forward.