MW This sector is heating up as investors get skittish on tech. Why it may be the dark horse for 2026.

By Barbara Kollmeyer

SoFi's Liz Thomas explains why a contrarian pick for 2025 could flourish

The healthcare sector was a contrarian pick for SoFi's Liz Thomas this year, that could come into its own in 2026.

Year-end angst just keeps hitting investors, with no signs of dip-buying after Monday's selloff. Blame jitters over AI and fading rate-cut hopes from the Fed.

Tech - rather AI - has become the big sexy call of 2025 that is haunting investors, who have done pretty well sticking to that. But is it time to start thinking about alternatives? Our call of the day from fintech SoFi's head of investment strategy, Liz Thomas, offers one idea as she sees healthcare emerging as a potential dark horse in 2026.

"This was a very contrarian pick headed into 2025 because RFK had just come into office," Thomas told MarketWatch in an interview, referring to Health and Human Services Sec. Robert F. Kennedy Jr. "He was making all sorts of changes and the sector was suffering from what it expected to be coming down the pike from the administration, and it had a rough year for sure."

But on the view healthcare could see a "strong catch-up trade" through the end of 2025, she's standing by the call she made at the start of the year. "It might actually end up as one of the top sectors to finish the year. It could start to be in contention and overtake industrials pretty quickly this year."

In the last week, healthcare has gone from one of the worst sectors year-to-date to beating financials, she said. The Health Care Select Sector SPDR ETF XLV is up around 10% this year, versus a 6%+ gain for the Financial Select Sector SPDR XLF.

"As investors rotate out of tech and are looking for other growth opportunities because they're not ready to get out of the market, they're looking for things that don't cost as much and healthcare was, I think at some point this year, in the first percentile in valuations compared with the S&P 500," she said. "So it doesn't get much cheaper than that."

Investors looking for both valuation and growth opportunity in pharma and biotech are starting to see that emerge. She said SoFi is still working on its 2026 outlook, but healthcare could turn into another call for 2026.

"This year I like it for that catch-up trade and the valuation rotation and the growth opportunity in pharma and biotech," said Thomas, who adds the sector also tends to do well in midterm years such as 2026, largely because it's more defensive.

Thomas said her team was fairly bullish headed into 2025, though they had two worries - inflation would reignite and AI would fail to monetize and earnings would disappoint. Neither risk has materialized, but the firm still has concerns on AI.

She said they also predicted software could outperform semiconductors this year, which hasn't proved correct.

"The idea behind that [software call], and I still do believe that this could happen, is that number one, as tech investors continue to look for growth, they're more valuation conscious in this market, and likely to rotate out of semis into software, and software will be the next conduit that brings AI to life," said Thomas.

Speaking to MarketWatch a day after a nearly 800-point drop for the Dow industrials, she said lots of excess was clearly being shaken out of the market, including from investors betting on momentum.

Thomas still expects a "chase" into the end of the year as fund managers play catch up.

The challenge is this: "To put it simply, everybody thinks they're going to get out of this before there's a crash. We don't know if or when there will be a crash, but when stocks get this extended, at some point there's likely to be a come-down-to-earth moment," she says.

Read: Fund managers are bullish. Bank of America warns of trouble ahead if the Fed doesn't cut.

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are lower, with Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y also down as investors look for havens. Silver (SI00) and gold (GC00) are falling and battered bitcoin (BTCUSD) is trading just above $91,000.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              6672.41    -2.34%  -0.93%  13.44%   13.21% 
   Nasdaq Composite                                                     22,708.07  -3.48%  -1.23%  17.59%   20.84% 
   10-year Treasury                                                     4.108      -1.30   13.40   -46.80   -29.40 
   Gold                                                                 4006.3     -2.84%  -8.41%  51.79%   53.14% 
   Oil                                                                  59.37      -1.13%  4.29%   -17.39%  -14.06% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

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The buzz

Home Depot shares $(HD)$ are dropping after the home-improvement retailer missed profit expectations and gave a downbeat outlook, citing lack of storms and consumer uncertainty.

Weekly private-sector payrolls data, which showed sharp job losses last week, are due at 8:15 a.m.

Delayed factory orders and a home builders' confidence index are coming at 10 a.m. Fed Reserve governor Michael Barr speaks at 10:30 a.m., followed by Richmond Fed president Thomas Barkin at 11 a.m.

Dutch paint maker Akzo Nobel (NL:AKZA) announced a $25 billion deal to buy Axalta Coating $(AXTA)$, whose share are jumping.

Activist investor and hedge fund Elliott Management has reportedly built a large stake in Barrick Mining $(B)$, with those shares rising.

Best of the web

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The chart

Morningstar strategist flag their "Forecast Trap" chat showing how most Wall Street firms set high goals for U.S. stocks at the start of 2025, cut those following President Trump's April tariff shock, then raised them again as prices recovered in the following months. "An investor blindly following those forecasts would have ended up doing exactly what we try to avoid-buying high and selling low, they said. Morningstar's 2026 outlook calls for investors to balance out big technology exposure, with non-U.S. markets, U.S. value and small-cap stocks.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   PLTR    Palantir 
   AMZN    Amazon 
   AAPL    Apple 
   GME     GameStop 
   HD      Home Depot 
   TSM     Taiwan Semiconductor Manufacturing 
   META    Meta 
   AMD     Advanced Micro Devices 

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-Barbara Kollmeyer

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November 18, 2025 07:36 ET (12:36 GMT)

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