- Communication Services is still the best performing sector globally in 2025, followed by Utilities and Technology
- Laggards such as Healthcare and Energy are doing better in the second half
- Weak end to the year from Financials, Industrials and Real Estate
- Healthcare’s resurgence may reflect lower valuations, easing of regulatory worries or even a desire for protection from less certain times in 2026
“There is an old saying that ‘a bad stock in a good sector will outperform a good stock in a bad sector,’ and finding the right narratives and valuations that support performance from a particular industry can help investors cut down on the amount of research they need to do and speed up the process of finding portfolio winners – and dodging potential losers,” says AJ Bell investment director Russ Mould.
“No-one will be shocked to see that Technology is a big winner and Real Estate a big loser in 2025, but there are some trends in the second half of the year that suggest a subtle shift in mood, notably strength in more defensive sectors and weakness in more cyclical, economically sensitive ones.
“Using the S&P Global 1200 indices as a benchmark, Communication Services, Utilities and Information Technology are the three best performers in 2025 to date. The first two, on the face of it, are relatively low-growth, tightly regulated sectors whose appeal usually lies in the predictable nature of their revenues, their dividend yields and their lack of exposure to the vagaries of the economic cycle.
“Their strong showing this year is less surprising when their make-up is examined. The five biggest stocks by sector weighting within Communication Services include Alphabet, Meta Platforms and Tencent, whose status as leading players in AI speaks for itself. NextEra Energy, Constellation Energy and Southern are among the largest names within Utilities. They are doing well as investors ponder who will provide the energy that powers and cools the data centres and servers needed for the computing and inference capabilities of the large language models that underpin AI.
Source: LSEG Refinitiv data
“However, the picture may not be as straightforward as it seems, as the pattern of sector performance looks different in the second half of the year when compared to the first.
Source: LSEG Refinitiv data. *To 26 November 2026.
“The improved second-half performance from the laggards of the first six months is eye-catching, especially in the case of Healthcare and Energy.
“Weak oil and gas prices continue to weigh upon the Energy sector. Doubts over the health of the global economy in an era of tariffs and trade tensions raise questions over demand, and there seems to be little shortage of supply, as OPEC+ raises output and traders ponder whether peace in the Middle East and a putative settlement between Ukraine and Russia could bring additional dollops of crude and gas to market. America’s ongoing interest in Venezuelan output is also on many traders’ radar, as current sanctions only permit limited production and export by US firms.
“But oil is relatively price inelastic and even the International Energy Agency seems to be taking a less bearish view of long-term demand. Add that to relatively limited capital investment by the oil majors and hydrocarbons may not be ready for the history books just yet, even as the globe strives to meet the net-zero target for 2050 laid down by the Paris Agreement in 2015.
“Even more intriguing is the return to favour of the Healthcare sector. The huge gains in shares in Eli Lilly may be helping here, as the American giant grabs a leading position in the weight-loss market, with its Mounjaro and Zepbound drugs, at the expense of Novo Nordisk.
“This may also be the result of what seems to be a clear cycle in terms of how drug stocks perform in relation to US presidential elections. Calling for lower drug prices seems a staple of many campaigns for the White House, and pharmaceutical and biotechnology stocks tend to struggle for momentum in the final year of a presidency, as the race for power runs through the primaries and then the final vote in November. Thereafter, it seems rare that the markets’ worst fears are realised and share prices rally, helped by their lowly valuation starting point and the absence of fresh bad news.
Source: LSEG Refinitiv data. From date of inauguration on 20 January of each first year in office. Year 1 of Trump second term to 26 November.
“This time around, US drug stocks, with the exception of Eli Lilly, started the year on forward price/earnings multiples that represented a very big discount to the wider US equity market. Even the appointment of Robert F. Kennedy Jr as secretary of state for health and human services, the launch of the TrumpRx drug website and the ongoing row over whether subsidies for Obamacare will be extended are failing to hold back big pharmaceutical stocks.
“President Trump’s proposal to fund the subsidies directly for some Americans, rather than via health insurers, could be taking off some of the pressure, while drug companies’ moves to strike deals in exchange for spending commitments in the USA may also be acting as a palliative for investors.
“Equally, Healthcare stocks can perform well when investors are concerned by the wider economic outlook and the prospects for earnings and dividends at cyclical sectors, such as Industrials, Consumer Discretionary, Real Estate and Financials.
“It remains to be seen whether Healthcare’s resurgence is down to factors that are specific primarily to the USA, or a gentle warning that 2026 may not be as straightforward for investors as 2025 has so far turned out to be, even allowing for the ructions caused by President Trump’s trade and tariff announcement back on ‘Liberation Day’ on 2 April.”
APPENDIX
The five biggest companies in the S&P Global 1200 sector indices by weighting
Source: S&P
