Prediction: this S&P 500 sector could produce the best returns in 2026

Over the previous yr, the best-performing S&P 500 sector was communication providers, adopted by data expertise. This won’t shock some, however with us now in 2026, I don’t suppose both of these two areas would be the finest place to speculate. Quite, I believe it may very well be one other sector that might steal the limelight this yr!

A straightforward tablet to swallow

My choose for 2026 is healthcare. Final yr, it jumped 12.4%. Healthcare demand isn’t tied on to the financial cycle the best way different sectors are. For instance, client discretionary or industrials are far more depending on how properly the broader US economic system’s doing. However on the subject of drugs, individuals nonetheless want care whatever the financial backdrop.

But it’s not only a defensive choose for 2026. The sector’s seeing large-scale breakthroughs that might actually increase associated shares. An enormous one I’m pondering of is the rise of GLP-1 weight problems and diabetes medication. One other one is making use of AI for quicker and extra correct drug discovery and diagnostics.

Lastly, I believe the valuation’s enticing. The biggest healthcare sector ETF has a price-to-earnings ratio of 26.49. This contrasts with the broader S&P 500 common of 31.28. So by enthusiastic about the place one of the best worth is true now, healthcare once more ranks extremely.

After all, that is simply my view. The sector won’t be one of the best within the index if the AI build-out continues. If investor optimism stays excessive, communication providers (together with Meta and Alphabet) may steal the present. Or if rates of interest fall quicker than anticipated, the actual property sector and associated US shares may see massive investor curiosity.

Particular targets

It’s attainable to purchase a sector tracker and make investments passively. There’s nothing mistaken with this, however I believe some particular person shares look significantly enticing. Eli Lilly‘s (NYSE:LLY) a very good instance right here.

The inventory’s surged 39% over the past yr, fuelled by demand in GLP-1 merchandise reminiscent of Mounjaro and Zepbound. Income in Q3 elevated 54% versus the identical interval final yr to $17.6bn, with these medication particularly referred to as out in driving this. Additional, with the potential for far more widespread adoption, a number of the share worth enhance is predicated on the longer term income potential.

Past weight problems therapies, Lilly has an increasing pipeline in oncology and different therapeutic areas. One other attraction of proudly owning the inventory is the diversification of income. It’s a broad-based healthcare firm, so if the sector as a complete does properly, Eli Lilly inventory ought to mirror the efficiency.

By way of dangers, there’s rising stress from US regulators to decrease drug prices. This might affect revenue margins going ahead for the corporate.

Even with this concern, I believe it’s a inventory for buyers to contemplate, as a approach to get publicity to the sector.