U.S. Services Sector Gains Momentum: Strategic Sectors to Watch Amid Expansionary Winds

The U.S. ISM Non-Manufacturing PMI for August 2025 came in at 52, handily beating expectations and underscoring the resilience of the services sector. . The data reveals a clear divide between sectors riding the expansionary wave and those lagging behind, with industrial conglomerates and tech-driven industries leading the charge while pharmaceuticals face headwinds. Let's break down the opportunities and risks.

The Winners: Industrial Conglomerates and Tariff-Driven Growth

The Business Activity Index at 55 and the New Orders Index at 56 point to a services sector firing on all cylinders. Key drivers include Wholesale Trade, Mining, and Information—industries that thrive on infrastructure spending, data center construction, and global supply chain adjustments.

Take Wholesale Trade, for instance. Companies like (CLG) and (GFS) are benefiting from a surge in pre-tariff inventory purchases. Investors should also eye Mining firms, where demand for critical minerals is surging. (MMM) and (CAT) are prime examples of industrial conglomerates poised to capitalize on this momentum.

The Prices Index , but for sectors like Mining and Information, this is a tailwind. Higher input costs are being passed through to consumers, and companies with pricing power—like (INTC) and Microsoft (MSFT)—are seeing margins hold firm.

The Laggards: Pharmaceuticals and Employment Contraction

While the services sector is expanding, the Employment Index . Sectors like Accommodation & Food Services and Public Administration are shedding jobs, and this trend could ripple into industries reliant on skilled labor.

Pharmaceuticals, in particular, face a perfect storm. The sector has underperformed the S&P 500 by 8% year-to-date, with companies like (PFE) and (MRK) grappling with patent expirations and regulatory delays. The Backlog of Orders Index , which could hit R&D-heavy firms hardest.

Portfolio Reallocation: Balancing Growth and Caution

The ISM data is a catalyst for strategic shifts. Here's how to position your portfolio:

1. Overweight Industrial Conglomerates: These firms are insulated from interest rate volatility and benefit from infrastructure spending. Look for companies with exposure to tariff-driven inventory builds and global supply chain retooling.
2. Underweight Pharmaceuticals: With employment contraction and regulatory headwinds, this sector is a drag on growth. Consider hedging with short-term bonds or defensive tech plays.
3. Monitor the Fed's Response. Watch the and for clues on policy direction.

The Bottom Line

The services sector is a locomotive, but not all cars are moving at the same speed. Industrial conglomerates and tech-driven industries are accelerating, while pharmaceuticals and labor-dependent sectors are stuck in neutral. Investors who reallocate toward the former and hedge against the latter will be well-positioned as the Fed navigates this expansion.

Final Call: This isn't the time to sit on the sidelines. The ISM data is a green flag—ride the momentum, but keep your eyes on the Fed's next move.