Investors have been using sector and industry money flow research since 1997 to inform their decisions. A proprietary stocks and sector ranking tool created in 2003 recently highlighted a shift towards healthcare in the stock market rally. Healthcare stocks surged after lagging behind, outperforming the technology sector.

Technology stocks now account for a significant portion of the S&P 500 index, with communication services and consumer discretionary stocks further increasing the sector’s weight. Investors heavily invested in technology may want to consider diversifying into healthcare stocks as the new year progresses.

Despite the surge in technology stocks, concerns of an AI bust are unfounded due to differences from the Internet boom, like fully subscribed data center capacity. However, investors should be prepared for technology stocks to take a break after three consecutive years of massive gains, potentially leading to a rotation into other sectors like healthcare.

Healthcare stocks have been performing well since June 2025, with major players like Amgen, Johnson & Johnson, and Merck rallying. The sector model developed ranks sectors by average score based on fundamental and technical analysis data points, with a focus on earnings and momentum trends in healthcare’s favor.

Biotech M&A activity has increased, with biotech ETFs like IBB and XBI significantly outperforming technology ETFs since June. Regulatory fears may be overpriced into healthcare stocks, presenting potential buying opportunities as interest rates decrease and markets remain strong.

Healthcare’s rally may slow down, but strong momentum suggests exposure in portfolios is warranted. Factors like portfolio rebalancing, diversification, and rising M&A opportunities support the case for healthcare stocks, as the sector enters 2026 with relative strength. Todd Campbell owns shares of Illumina, Johnson & Johnson, and Amgen.

Read more at Yahoo Finance: Investors quietly pile into a group of stocks for 2026 (it’s not tech)