My Top Sectors for the Next 12 Months
Well now...
We're only two weeks in... and 2026 doesn't feel like the kind of year that will stand up to predictions.
The news, particularly from global politics, has been full of surprises that will have long-lasting effects.
That said, we still need to prepare our portfolios for the year ahead.
And while many believe it's the skill of an investor to predict things like the ouster of a Venezuelan president or the potential downfall of the Iranian regime... the best investors do the opposite.
They invest in assets that are insulated from such volatility.
There are hundreds of high-quality stocks with businesses that don't care about geopolitics.
Business is business. And what drives different sectors are big trends... not necessarily headlines.
How many burgers McDonald's (MCD) sells depends on consumers. How much Big Tech earns depends on their spending plans in the AI race.
You can get a big edge by knowing which businesses are set up for success.
I've already shared a series of broad predictions... and added my guidance on several market trends you need to get right to be successful in the coming year.
Today, I'm going to point you to the best sectors.
We'll start with which one I expect will lead the pack...
'Tech' Reigns Again
In finance, there are precisely 11 sectors that all stocks are classified into: communication services, information technology, industrials, financials, utilities, health care, materials, consumer discretionary, energy, consumer staples, and real estate.
And in 2025, the performance was (obviously) all about technology...
Prior to 2018, information technology and telecommunications were part of the same sector. But those got reshuffled, and telecommunications became communication services to account for all telecom, media, and entertainment companies.
Communication services now includes Internet-based tech firms like Alphabet (GOOGL), Meta Platforms (META), and Netflix (NFLX).
So to capture what most people think of as "tech stocks," you should look at both.
In recent years, the AI boom has driven all kinds of tech stocks higher.
As you can see above, communication services and information technology were the top performers last year.
Don't expect that to stop in 2026.
Yes, the AI boom will continue. It may have a pullback. But it was the main investing story of 2023, 2024, 2025... and will take the crown again.
That doesn't mean it'll look exactly the same...
This year, the AI focus will start to move down the value chain. So far, the real winners have been the "picks and shovels" plays. In other words, it's not the AI companies themselves making money... Rather, it's the companies building data centers for AI companies.
Chipmaker Nvidia (NVDA), networking giant Cisco Systems (CSCO), and other hardware plays all had a great 2025. And they drove the information technology sector higher.
At the same time, Alphabet carried communication services higher.
Now, as AI starts to help and build real businesses, the software side will pick up. And communication services will benefit in a big way.
This looks like a second-half-of-the-year story to me. AI will take more time than many expect to be deployed throughout the economy.
But these will be the sectors that make or break 2026... and the momentum is still very positive.
You can easily tilt your portfolio toward these sectors with funds like the State Street Technology Select Sector SPDR Fund (XLK) and the State Street Communication Services Select Sector SPDR Fund (XLC).
Health Care (and Biotech) Step Up
For most of 2025, health care looked weak.
Investors were more interested in hot AI stocks. And Robert F. Kennedy Jr., the new secretary for the Department of Health and Human Services ("HHS"), was highly unpredictable.
So investors saw low upside and broad uncertainty for health care... Not a great mix.
That will change this year – for two reasons.
First, health care's underperformance has reached an extreme. Over the past three years, the sector has underperformed by more than 30 percentage points...
Second, health care offers safety in a volatile market.
I'm bullish on the market, but I also see a volatile year ahead. Investors will learn to appreciate the profitable, recession-proof businesses in the health care sector.
And after the HHS's restructuring, initiated by the Department of Government Efficiency, new health care policies have been less shocking than feared (at least, from a business perspective).
As you can see, health care started to rally through the end of 2025. That's a sign the market is coming around to this view...
Within the health care sector, there's also opportunity in a particular industry... biotechnology.
These are the cutting-edge companies pursuing new treatments and cures.
They're typically speculative stocks. But from a top-down perspective, the industry looks ripe for a big year.
In recent years, despite breakthroughs in cancer, weight loss, diagnostics, genetics, and more... biotech stocks have lagged. Based on the science, this sector should be booming.
Instead, shares are cheap. And if interest rates head down, that'll be a boon for biotech stocks (since their potential future earnings will have a greater present value).
You can get exposure to health care via the State Street Health Care Select Sector SPDR Fund (XLV) and biotech through the iShares Biotechnology Fund (IBB).
Energy Will Finally Take Off
Despite all the talk of soaring electricity demand for AI, the energy sector had a relatively quiet 2025.
AI demand drove returns in industrials and utilities because they provide electricity generation... but it didn't really reach the energy sector.
That'll change this year. We're going to need both natural gas and oil to power the country. And both commodities are at low prices right now...
Put simply, energy prices at these levels just don't make sense...
Some fear lower oil prices due to new supply from Venezuela, but that's years away. And geopolitics threatens more spikes in oil prices – from tensions in Iran or with Russia – than it does a new influx of supply.
Energy enjoyed some attention early in 2025 after President Donald Trump's promises of deregulation. Trump did cut some red tape for energy projects... but they take time to put in place.
That's going to start ramping up next year, and commodity prices (and earnings for companies in the sector) will rise in turn.
You can add energy exposure to your portfolio simply with a fund like the State Street Energy Select Sector SPDR Fund (XLE).
Today's issue closes out my series of 2026 predictions.
Keep in mind, the exchange-traded funds I mentioned today aren't official recommendations. But they're a great way to tilt your portfolio toward tech, health care, and energy.
If you prefer to invest in individual stocks... these sectors should be your hunting ground for new ideas.
Every year offers different opportunities. And these are the ones to watch in 2026.
What Our Experts Are Reading and Sharing...
- The Department of Justice announced a criminal investigation into Federal Reserve Chair Jerome Powell. Here's Stansberry Research's own Corey McLaughlin on how Powell is firing back. And if you want a quick explanation on why Fed independence is so important – you can get my 20-second take on Instagram (please forgive my casual wear).
- Greg Ip from the Wall Street Journal wrote a great, clean thesis this week... The headline says it all: "Trump Wants to Run the Economy Hot. There's a Good Chance He'll Succeed."
- With big tech changes, the bottleneck is often not the speed of innovation... but the speed of regulation. And New York state just set up legislation that would legalize robotaxis (though they're holding off on New York City for now).
New Research in The Stansberry Investor Suite...
This month's issue of Stansberry Innovations Report could be the publication's most valuable issue of the year.
Editor John Engel, with the help of Tyler Jarman, conducts a review on the entire Innovations Report portfolio.
It sounds like a simple bit of housekeeping. But it's actually the best way to prepare for the biggest technology stories of 2026.
If you want to know what's going on in cutting-edge health care, automation, advertising technology, AI, defense, and more... this is the place.
The team runs through the most innovative companies in the market, shares the best opportunities to capitalize on, and then updates advice on three current positions in the portfolio. (They also lock in triple-digit gains on two stocks.)
Stansberry Investor Suite subscribers can read the entire report here.
If you don't already subscribe to The Stansberry Investor Suite – and want to learn more about our special package of research – click here.
Until next week,
Matt Weinschenk
Publisher and Director of Research
What do you think about This Week on Wall Street? Send any and all feedback to thisweek@stansberryresearch.com. We read every e-mail you send in.