2026 Equity Sector Mid-Year Update

What happened in the first half of 2026?

The U.S. economy remained in a mid-cycle expansion, supported by solid economic growth and early signs of labor-market improvement, while inflation, policy uncertainty, and geopolitical risks remain key concerns. Almost all sectors posted positive returns, with AI spending driving technology's leadership, and energy benefiting from oil price declines. Materials gained from capital spending, while financials and health care lagged.

How Sectors Performed

Year-to-date cumulative returns as of June 30, 2026.

Information technology sector

By: Priyanshu Bakshi, Sector Leader and Portfolio Manager

Sector performance: The information technology sector was among the top-performing of the 11 equity sectors in the first six months of 2026, returning 27.28%, compared with 10.25% for the S&P 500 index.

View at year-end: Heading into 2026, I expected the “picks and shovels” that have brought the artificial intelligence train this far—graphics processing units, high-speed memory, and data centers—to continue to be integral to successive improvements throughout the year and beyond. I believed that spending on picks and shovels would continue, as AI models constantly evolve and require updated equipment to support new capabilities. On the other hand, I also was looking toward areas in the sector poised to be disrupted by AI, including IT services and software, that could experience some volatility and negative revisions.

Where we are now: As of the midyear point in 2026, there has been a significant amount of volatility year to date. We’ve seen a number of steep declines and recoveries as the market digested concerns about geopolitical events, inflation, and the sustainability of AI infrastructure spending. While it can be unpleasant, we expect bouts of volatility from time to time, and these periods can present opportunities for active investors to take advantage of dislocations in stock prices. Volatility has been heightened in the software industry in particular as investors grapple with the impact of AI on companies in the space. Valuations in the software industry have come down significantly, and I believe the market may continue to grapple with this question for some time.

Future outlook: At a high level, my outlook for the second half of the year remains broadly similar to my view coming into the year. I remain bullish about the tech sector, and I’m excited about AI’s growth and its potential. I believe the “picks and shovels” companies will continue to power the growth of AI. We continue to learn more as the trend evolves, and I expect we’ll continue to see shifting classifications between “AI winners” and “AI losers.” So, while I believe the top-level trends will continue—with AI powering the broader market—the outlook for individual companies is likely to be dynamic. This creates potential opportunities for active investors focused on the tech sector.

Read the 2026 information technology performance outlook

Energy sector

By: Kristen Dougherty, Portfolio Manager and Research Analyst

Sector Performance: The energy sector was a top performer in the first six months of 2026, gaining 20.90% compared with 10.25% for the S&P 500 index.

View at year-end: My outlook for energy stocks six months ago was built around a fairly balanced view of supply and demand for crude oil. I expected the price of crude oil to stay range-bound in 2026, as phased supply increases from OPEC (Organization of the Petroleum Exporting Countries) were absorbed by steady global demand. Once this supply increase was absorbed, my outlook on oil was expected to improve, driven by the industry’s need to replace reserves. In my outlook at year-end, I was also positive on the impact that the build-out of data centers for artificial intelligence would have on power producers and parts of the natural gas and energy-services value chain, at least on a medium-term basis. Valuation support also mattered entering 2026 because energy had posted positive absolute returns in 2025 but still lagged the broader U.S. equity market, leaving parts of the sector looking more reasonably priced than faster-growing areas.

Where we are now: By midyear, my previous core thesis that spare oil capacity would shrink over time and eventually lay the groundwork for a stronger future oil cycle looks more accelerated than reversed. With respect to natural gas and energy, my thesis six months ago remains intact as well. Events like the U.S./Israel conflict with Iran and the subsequent closure of the Strait of Hormuz have created significant short-term disruption. Global oil supply has been materially constrained by the loss of access to the 25% of seaborne oil that transits the Strait. While oil prices have risen since the start of the conflict, they have not yet risen to levels that significantly destroy demand; the increase in the price of oil has been tempered by the release of oil from global strategic stockpiles, most notably in the U.S. and China.

Future outlook: Looking ahead, my outlook for the energy sector remains constructive but selective; I favor businesses that can navigate a range-bound oil price in the near term, while being positioned for a later upcycle for oil and a multi-year rise in power demand.

In the short term, I expect ongoing volatility in the price of oil, in line with ever-changing headlines about the peace process between the U.S./Israel and Iran.

Materials sector

By: Ashley Fernandes, Sector Leader and Portfolio Manager

Sector performance: The materials sector was among the top performing sectors for the first six months of 2026. The sector advanced 11.17% through June 30, 2026, compared with 10.25% for the S&P 500 index.

View at year-end: As of December 31, 2025, my outlook described a sector entering 2026 with a split personality: metals and construction-related businesses were performing well, while chemicals stocks were still wrestling with weak demand and excess capacity. Copper was the clearest long-term positive from my year-end thesis because supply was seen as increasingly constrained while demand was being supported by electrification and renewable power investment, largely tied to AI-related power demand and the build-out of the U.S. power grid.

Where we are now: During the past several months, as concern about the viability of artificial intelligence-related investments surfaced and conflict in the Middle East took center stage, the materials sector benefited from investors adopting a defensive stance, favoring stable, lower-multiple and cash-generative firms over long-duration, high-multiple growth stocks. My conviction in the strong outlook for copper producers remains intact, while still acknowledging that copper equities can be volatile in the short run and are sensitive to swings in macro sentiment. Another improving area has been selected chemicals companies, particularly specialty chemical firms tied to semiconductors, electronics, and AI infrastructure demand, while commodity chemicals looked more like a valuation-based recovery opportunity than a clean secular growth story. After a strong run to near-record highs for gold bullion, gold-related companies have been treated more cautiously of late, whereas silver has had more incremental upside because it benefits from both store-of-value demand and growing industrial use.

Future outlook: Looking ahead, my outlook remains constructive but highly selective, with the best opportunities still concentrated in supply-constrained commodities and AI-linked materials niches rather than in the more overbuilt parts of the chemicals complex. Geopolitical disruption in the Middle East has significantly constrained global fertilizer supply, just as seasonal demand has begun to peak. So, I believe segment stocks could experience further near-term growth.

Read the 2026 materials sector performance outlook

Financials sector

By: Gerard Benson, Portfolio Manager and Research Analyst

Sector performance: The financials sector lagged almost all sectors based on year-to-date performance through June 30, 2026, returning 0.64%, compared with 10.25% of the S&P 500 index.

View at year-end: Going into 2026, the backdrop for financial stocks included tariff-related uncertainty, persistent inflation, concern about the labor market, and isolated credit events such as Tricolor Auto Group and First Brands, all of which supported the idea that the first half of 2026 would still reward bottom-up security selection more than macro generalizations. Alternative asset managers were one of my few areas of conviction, with a view that concerns about private credit had spread too broadly relative to the actual exposures of leading firms.

Where we are now: At the midyear point of 2026, the financials sector is positioned well, given a resilient economy driven by monetary and fiscal tailwinds, a significant capital spending cycle, deregulation, and relatively healthy corporate and consumer balance sheets. The sector is reasonably valued, with dispersion among the subsectors—and at the stock level—providing opportunities for stock selection and active management.

Future outlook: Looking ahead, I remain constructive on both the banks and capital markets subsectors. The banks subsector are operating from a position of strength, with a positively sloping yield curve, accelerating loan growth, fee income momentum, stable credit, and expanding profitability in an easing regulatory environment. They are poised for low double-digit EPS growth and trade 20%–25% below prior cycle valuation averages. The capital markets subsector remains attractive to me, as the necessary drivers for increased activity are in place, including: technology developments that are disrupting business models, the broader build-out of data center infrastructure needed to scale AI, supply-chain/global repositioning objectives, global regulatory changes, the need for sponsors to deploy and recycle capital, and the fact that capital markets are wide open with tight credit spreads.

Evaluating the short- and long-term impact of AI on the financial sector, as well as the broader U.S. economy, has increased in importance in 2026 as technology has progressed and company valuations have been impacted, given the perceived disruption to business models. I view both the banks and capital markets subsectors as well positioned from this perspective because they both should largely be net beneficiaries of AI, given the significant cost-savings opportunity and because they have a more resilient business model with regulatory oversight, a balance sheet-driven business, and trusted client relationships involving bespoke needs. A couple of other subsectors in which I maintain a favorable view because they have corrected due to AI are insurance brokers and retail brokers/wealth managers. I view the AI business model disruption as misplaced, due to the complex and comprehensive solutions that are demanded by the respective client base and the implicit requirement for accountability and a trusted relationship.

Read the 2026 financials sector performance outlook

Health care sector

By: Eddie Yoon, Sector Leader and Portfolio Manager

Sector performance: The health care sector was among the worst performing of the 11 equity sectors in the first six months of 2026, returning 4.75%, compared with 10.25% for the S&P 500 index.

View at year-end: At the end of 2025, my outlook for the health care sector was mixed. Uncertain government policy, alongside tariff and trade concerns, and rising health care costs had led to volatility in the sector through the past year, and I saw the potential for volatility related to these factors to continue in 2026. At the same time, I saw some real bright spots in the sector that I felt could help lead to a turnaround for the sector—especially within the biotechnology and life sciences tools & services industries.

Where we are now: At the midyear point of 2026, health care has continued to lag the narrowly-led broader U.S. equity market so far this year, although I do see bright spots in the sector. As a whole, the sector’s valuation remains attractive relative to its historical average. The regulatory policy environment has calmed—bringing some much-needed clarity to investors. The biotechnology industry remains a bright spot, in my view, with the continuation of the merger and acquisition activity that marked the second half of 2025, as well as a number of favorable clinical trial read-outs during the first half of this year.

Future outlook: I remain particularly constructive on the biotechnology industry. After a long drought in the industry, I believe the tailwinds—M&A, innovation, and positive data—that have driven the industry over the past year or so will continue. I also remain constructive on the life sciences tools & services industry—fundamentals have started to improve for the industry as a whole, and I foresee this trend continuing in the second half of the year. Elsewhere, a trend I’ve been increasingly focused on is the potential for AI in the health care sector. I am already starting to see small impacts from AI on health care companies, with the use of AI helping to cut overhead. The potential opportunity for cost savings is significant, given that administrative spending accounts for some $1 trillion a year, or about 20% of all spending on health care in the U.S. But looking ahead, I’m excited about the innovations that AI can help foster. As AI computing power becomes more readily available, it could breathe new life into the industry’s research capabilities, leading to new discoveries about how human biology works, which ultimately may help us to create new therapies to cure diseases.

Read the 2026 health care sector performance outlook