Sector Rotation in 2025: Navigating Earnings Momentum in Consumer Staples, Travel, and Healthcare

In July 2025, U.S. corporate earnings painted a fragmented picture of economic resilience and sector-specific struggles. While some industries thrived amid recovering demand and strategic reinvention, others grappled with structural headwinds. For investors, the challenge lies in discerning where capital is flowing—and where it is retreating—to position portfolios for long-term growth. A closer look at recent earnings reports from PepsiCo, United Airlines, and healthcare giants like Elevance Health and Johnson & Johnson reveals a tale of divergent trajectories, offering clues about the market's shifting priorities.

Consumer Staples: A Cautionary Tale of Eroding Demand
PepsiCo's Q2 2025 results underscored the fragility of the consumer staples sector. Despite a $2.12 adjusted EPS beat, the company reported a 63% year-over-year drop in net income to $1.26 billion, driven by weak demand in North America and China. Organic revenue growth of 2.1% was overshadowed by a 1.5% decline in food and beverage volume, signaling a broader malaise in discretionary spending. The company's muted outlook—projecting low-single-digit organic revenue growth for the year—reflects its struggle to counteract inflationary pressures and shifting consumer preferences.

PepsiCo's stock, up 1% in premarket trading, remains under pressure from its five-year lows, a stark contrast to its historical outperformance during economic downturns. This divergence suggests that investors are no longer willing to bet on the sector's defensive allure, particularly as tariffs and supply chain disruptions erode margins. For long-term investors, the takeaway is clear: consumer staples may require a more selective approach, favoring companies with pricing power and digital transformation initiatives over those reliant on stagnant volume.

Travel: A Post-Pandemic Rebound Gains Steam
United Airlines' Q2 earnings offered a counterpoint to PepsiCo's struggles. The carrier reported a revised 2025 profit outlook of $9–$11 per share, driven by a 6% increase in premium cabin revenue and a 3% surge in share price. CEO Scott Kirby credited a “stabilization in consumer and business travel confidence” and a reduction in industry supply for the turnaround. United's optimism was mirrored by peers like Delta and American Airlines, which also saw shares rise on improved demand trends.

The travel sector's revival is underpinned by structural factors: a shrinking global airline fleet (down 8% since 2023) and a shift toward premium offerings. United's investment in first-class seats and in-flight connectivity—spending $1.2 billion on fleet upgrades—has resonated with travelers willing to pay a premium for comfort. For investors, this sector's momentum suggests a shift toward high-margin, experience-driven services, a trend that could persist as global economies stabilize.

Healthcare: Resilience Through Innovation and Scale
The healthcare sector emerged as a standout in Q2 2025, with Elevance Health and Johnson & Johnson demonstrating the power of scale and innovation. Elevance reported a 14% revenue increase to $49.4 billion, driven by higher Medicare Advantage membership and premium yields, despite a 260-basis-point rise in the benefit expense ratio. Its updated guidance—$30 adjusted EPS in 2025—reflects confidence in its ability to manage medical cost trends through data-driven care delivery.

Johnson & Johnson, meanwhile, raised its full-year EPS guidance to $10.85, fueled by 3.8% growth in its Innovative Medicine segment and 6.1% growth in MedTech. The approval of IMAAVY for generalized myasthenia gravis and the OTTAVA robotic surgical system's first cases highlighted the company's pipeline strength. J&J's diversified model—spanning pharmaceuticals, medical devices, and consumer health—has insulated it from sector-specific risks, making it a bellwether for long-term healthcare trends.

Positioning for Long-Term Growth
The divergence in earnings performance across sectors points to a broader reallocation of capital. Travel and healthcare, with their strong demand drivers and innovation cycles, are attracting inflows, while consumer staples face a reckoning with structural challenges. For investors, the key is to align with sectors that offer both macroeconomic tailwinds and durable competitive advantages.

• Travel: Prioritize airlines with premium product differentiation and disciplined capacity management.
• Healthcare: Focus on companies with robust R&D pipelines and digital health capabilities.
• Consumer Staples: Seek out niche players with agile supply chains and direct-to-consumer engagement.

In a market where momentum often dictates valuations, the July 2025 earnings cycle serves as a reminder: long-term growth requires not just reacting to current trends but anticipating where the economy is headed. As the U.S. navigates a fragile recovery, those who position for innovation and resilience will likely outperform those anchored to the past.