Surprising Stocks Leading the Market Surge in Q3 2025: Why Industrials and Staples Are Outperforming Tech

The Q3 2025 market has seen a dramatic shift in investor sentiment, with traditionally overlooked sectors like industrials and consumer staples stealing the spotlight from tech giants. Amid rising macroeconomic uncertainty and valuation resets, these sectors are proving their resilience through undervalued stocks, stable cash flows, and tailwinds from infrastructure spending and defensive demand. Here's why now is the time to rebalance portfolios toward these underappreciated corners of the market.

Industrials: The Undervalued Engine of Growth

The industrials sector has emerged as a quiet powerhouse, with a 12-month return of 18.9%, outperforming the S&P 500's 14.4% gain. This growth is fueled by strong demand for machinery, construction, and defense spending, even as tariffs on steel and aluminum loom.

Key Players and Metrics:
- Global Payments (GPN): Trading at 42% below its fair value, this payment processing giant is positioned to dominate post-pandemic recovery. Its acquisition of Worldpay expands transaction volume to $3.7 trillion, though execution risks persist.
- CNH Industrial (CNH): A 39% undervalued leader in agricultural and construction machinery, benefiting from precision farming trends and global infrastructure projects.
- Huntington Ingalls Industries (HII): A 26% undervalued shipbuilder with long-term contracts for U.S. nuclear submarines, offering steady revenue visibility.

Consumer Staples: Steady as She Goes

While tech stocks grapple with supply chain disruptions and trade wars, consumer staples—long a defensive play—are delivering outsized returns. The sector's six-month return of 3.1% outperformed the S&P 500, and select stocks like Philip Morris (PM) are soaring.

Top Performers:
- Philip Morris (PM): With an 81.04% one-year return, this tobacco giant is riding the wave of smoke-free product adoption (IQOS and Zyn pouches account for 40% of revenue). Its 4.1% dividend yield adds to its appeal.
- Procter & Gamble (PG): A Dividend King with 4% organic sales growth in 2024, driven by premium brands like Tide and Gillette.
- Walmart (WMT): A 51.34% one-year return reflects its dominance in essential goods, bolstered by e-commerce integration and price stability.

Why Now? Valuation, Macroeconomics, and Sentiment Shifts

1. Valuation Edge:
2. Industrials and staples are trading at deep discounts compared to tech. For example, Global Payments (GPN) and Chart Industries (GTLS) are 42% and 34% below fair value, respectively.

3. Tech stocks, meanwhile, face headwinds from China-U.S. trade tensions and supply chain bottlenecks.

4. Macroeconomic Tailwinds:

5. Infrastructure spending: The Biden administration's focus on roads and renewable energy is boosting industrials.

6. Defensive demand: Rising inflation and recession fears have strengthened demand for staples like groceries and household essentials.

7. Sentiment Shift:

8. Investors are rotating out of overvalued tech and into sectors with tangible growth. The Morningstar US Industrials Index rose 5.07% YTD, outperforming the broader market's 2.17% gain.

Risks and Considerations

• Tariff Volatility: Sectors reliant on steel (industrials) or global supply chains (tech) remain exposed to policy shifts.
• Interest Rates: While Fed rate cuts could ease debt burdens for industrials, rising rates could pressure staples' margins.
• Execution Risks: Deals like Global Payments' Worldpay acquisition require flawless integration.

Investment Strategy: Rebalance for Sustained Gains

1. Target Undervalued Leaders:
2. Industrials: Buy GPN, CNH, or HII for exposure to infrastructure and defense.

3. Consumer Staples: Focus on PM, PG, or WMT for dividend stability and growth.

4. Use ETFs for Diversification:

5. SPDR Consumer Staples Select Fund (XLP): Tracks giants like PG and PEP with a 0.09% expense ratio.

6. iShares U.S. Industrials ETF (IYJ): Offers broad exposure to aerospace, machinery, and logistics.

7. Avoid Tech Overexposure: Rotate out of crowded tech names into sectors with better risk-adjusted returns.

Conclusion

The market's Q3 2025 rotation is a clear signal: value and stability are winning over growth at any cost. Industrials and consumer staples offer a rare combination of undervaluation, defensive demand, and macro tailwinds. For investors seeking sustained gains, now is the time to pivot portfolios toward these overlooked sectors before they fully capture the market's attention.

Investment decisions should consider individual risk tolerance and financial goals. Past performance does not guarantee future results.