This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

One of the largest medical-device companies, Medtronic develops and manufactures therapeutic medical devices for chronic diseases. Its portfolio includes pacemakers, defibrillators, transcatheter heart valves, stents, insulin pumps, spinal fixation devices, neurovascular products, advanced energy, and surgical tools. The company primarily markets its products to healthcare institutions and physicians in the United States, Western Europe, and Japan. Foreign sales account for roughly 50% of the company's total sales.

With operational headquarters in Minneapolis, Medtronic is one of the world's largest medical technology and solutions companies. Its devices focus on cardiac rhythm management, spinal and surgical navigation technologies, treatments for diabetes and neurological conditions, vascular therapies, and cardiac surgery. MDT is a component of the S&P 500.

Amid Market Selloff, Sector Rotation Intensifies Leadership in the U.S. stock market continues to move away from the traditional growth sectors and toward defensive, interest-rate-sensitive, and cyclical names. These sector shifts to some degree are 'hiding' within the overall decline in the stock market as tariff uncertainty and DOGE layoffs contribute to uncertainty. Most economic data supports a U.S. economy that is chugging along, but the GDPNow indicator set off alarm bells at the end of February. This usually reliable GDP forecaster flipped from positive for 1Q25 to negative in just a week. Atlanta Fed officials, who maintain the model, are suggesting that the swing to negative was overstated by physical commodity trades executed in advance of tariffs. Other data suggests some sagging in confidence, but ongoing normal business activity. We believe the uncertainty related to the timing and extent of tariffs will continue. With tariff policy changes coming at a moment's notice, companies complain that they are hamstrung in their business planning. We believe the economy has enough strength and flexibility to withstand some degree of disruption, though not an endless amount. Growth Sectors Lose their Luster Weakness in traditional leadership sectors (Information Technology, Communication Services, Consumer Discretionary) is not exactly breaking news to growth investors. The 'age of AI' began in the market with the November 2022 release of ChatGPT by OpenAI. This exciting new tool and all it portended came to investors' attention across 2023, and growth leadership rebounded from a down 2022. Based on performance of iShares ETFs and Select SPDRs, the Information Technology sector (IYW) soared 65% in 2023. Performance was led by generative AI leader Nvidia, which surged a stunning 240% for the year. As well, Microsoft rose 57% in 2023. Communication Services (XLC) rose 50% in 2023, led by social media giants Meta Platforms (up 194%) and cloud service provider Alphabet (up 58%). Consumer Discretionary (XLY) was in third place in 2023 with a 35% gain, paced by an 81% gain for Amazon. The companies named above were perceived as among the leaders in creating the hardware infrastructure for enabling generative AI clusters (Nvidia) and building the large language models essential to delivering AI-as-a-service across the cloud (Alphabet, Microsoft, Amazon, and Meta). These three sectors 'sucked up all the air in the room' in 2023, leaving other sectors scrambling for relevancy. The eight other S&P sectors appreciated an average 3.4% in 2023. Even though the S&P 500 rose 25% in 2023, only Industrial (IYJ) and Financial (IYF) achieved double-digit gains, and they were far behind the overall S&P 500. Utilities (IDU), Energy (IYE), Real Estate (IYR), and Consumer Staples (XLP) all declined for the year. Some investors regard 2024 as the year when generative AI as a stock-market theme went mainstream. As often happens in the market, by the time 'everyone' knows something, much of the money already has been made. Information Technology had another good year in 2024, again beating the market -- but not by nearly as much as in 2023. Communication Services led all sectors with a 32% gain, followed by 30% for Information Technology. Two other sectors beat the S&P 500's 23% gain: Financial was up 30%, while Consumer Discretionary was up 26%, thanks to a late-year surge. Utilities almost matched the 2024 market, rising 20%. New Leaders Emerge While traditional sector leaders finished on top in 2024, that partly reflected gains won as of mid-year. Information Technology was up 23% at mid-year 2024, while Communication Services had rallied 17%. Both sectors padded their gains in the second half of the year, but they were behind the second-half sector leaders. One of our base-case scenario predictions for 2024 was that the Fed, which last raised rates in July 2023, would begin cutting rates by mid-year 2024. That first rate cut happened a little later than we expected, in September. But excitement regarding pending rate cuts accelerated the already underway rotation toward perceived interest rate beneficiaries. Consumer Discretionary was the best sector in second-half 2024, rising 22% on an expected step-up in purchases of financed goods such as homes, autos, and appliances. The Industrial sector rose 20% in the 2024 second half on a similar belief that lower rates across the board would stimulate demand for capital goods, aided by the new administration's oil-friendly policies. The Financial sector rose 17% in 2H24 on the belief that lower rates would stimulate fee-based business activity in corporate finance, IPOs, and commercial loans and mortgages. Historically, as the fed funds rate and market interest rates begin to decline, Utility and REIT yields also tend to come down. Barring changes in dividend policy, the only way for that to happen is for Utility and Real Estate stocks to rise. This partly reflects the leveling in rates as well as income investors leaving the bond market and switching into high-yield stocks. In 2H24, the Utility sector rose 10% while Real Estate was up 9%. 2025: Sector Rotation in Force Less than a month and a half into 2025, the sector rotation that started in 2024 has intensified amid the overall downtrend in stocks. Investors entered 2025 with a mixture of enthusiasm and apprehension. While excited about prospects for reduced regulations and lower taxes, investors were wary about widespread tariffs that could reignite goods inflation and mass deportations that could trigger wage inflation. Deportations have commanded some headlines, but the numbers have not been much different from those in 2024 due to limitations on the ICE and Homeland Security infrastructure. Tariffs have been a bigger issue, not because of their actual impact but because of frequent changes on timing of implementation and magnitude. Business leaders who say they can (reluctantly) live with tariffs find it difficult to complete their 2025 business planning due to this volatility. In this environment, defensive sectors are increasingly rotating into favor. Based on closing prices as of 3/10/25, the leading sector in 2025 is Healthcare, up 5.9% as of early March. Healthcare lagged in the 2020-24 period, first on COVID-19 restrictions and then on the uneasy swing back to normal in the post-pandemic period. Emergence of GLP-1 drugs and new compounds for Alzheimer's and cancer have rebuilt excitement toward the sector. Consumer Staples is in second place, with a 5.2% year-to-date gain in 2025. Staples companies have been working for years to streamline operations and supply chains while introducing new products and offering more product variety. In a tariff environment, we expect consumers to prioritize necessities over durable goods. Sector stocks offer above-market current income and are attracting investors with their defensive characteristics in a turbulent market. Another positive sector is Materials, up 3.4%. U.S. disengagement from the international arena is expected to give China more room to widen its sphere of influence. Continued strength in Materials will require China to make good on its plans to invest in its own consumer economy and move beyond its real estate bubble. The income sectors (Real Estate and Utilities) are rising again as interest rates move down. In 2024, rates declined particularly at the short end of the curve on optimism that the Fed could keep cutting rates in a rising economy. In 2025, rates are falling, particularly at the long end, on safe-haven investing in bonds as fears of recession and stagflation become more preeminent. Utilities are up 4.1% year to date, while the REIT sector is up 3.2%. What about the big three growth leaders? Communication Services is up 1.0%year to date in 2025, helped not by the social media giants but by the high-yield telcos in this index (T & VZ). Consumer Discretionary is down 11.6% as hopes for increased demand for financed goods is superseded by fears that tariffs will push home and auto prices out of reach for most consumers. Information Technology is down 10.7% year to date. As 2024 wound down, investors were experiencing sticker shock at the planned capital expenditures of the cloud giants to support their generative AI initiatives. The emergence of China's DeepSeek and other less-expensive AI models suggested that hyperscalers and their clients were over-paying for AI compute power. Amid new skepticism, investors are inclined to take profits in tech after two years of soaring stock prices. Conclusion Seven of the 11 S&P sectors are up year-to-date in 2025 based on prices as of 3/10/25, yet the S&P 500 is down 4.5%. The three traditional growth leader account for 51% of total S&P 500 market weight; if they are not doing well, it is difficult for the overall stock market to do well. We continue to monitor risks and opportunities in the economy related to meaningful policy changes. Our base case for 2025 remains that the economy will continue to grow in the low-2% range, unemployment will remain relatively close to current levels, and S&P 500 earnings growth will accelerate in 2025 from 2024 levels. Our economic growth forecast is most at risk if tariffs and tariff fears reduce business activity. Earnings and employment would be sensitive to an actual downturn in 2025 GDP. For now, leadership has clearly shifted away from traditional growth sectors and toward cyclical, income-sensitive, and defensive sectors. We believe this broadening in the market will help insulate stocks from endogenous shocks. At the same time, if growth does not lead the market in 2025, it is hard to envisage the S&P 500 rising in double-digit percentages for a third year in a row.