Since the launch of the generative AI chatbot in November 2022, U.S. equities have done little wrong. The S&P 500 returned over 20% in 2023 and 2024, while 2025 was another double-digit year, overwhelmingly driven by artificial intelligence (AI) beneficiaries. However, this extended bull market may have left portfolios concentrated and vulnerable to elevated valuations. While we still favor the U.S. tech sector, we should not ignore other sectors for potential returns. Looking into 2026, investors should ensure they have exposure to less appreciated opportunities in the U.S. equity market.

From a macro perspective, a market that is past peak tariff uncertainty and is set for lower interest rates should enable a broadening out of earnings and market returns. In fact, consensus estimates expect mega-cap tech stocks’ contribution to headline earnings per share (EPS) growth in 2026 to remain steady at around 5%, but the contribution from the rest of the companies is expected to increase significantly to 10% in 2026 (Exhibit 1).

Moreover, we see sector-specific opportunities in Financials, Healthcare and Industrials in the year ahead.

Financials:

Within financials, we see banks benefiting from multi-pronged tailwinds, but they trade at an attractive 40% discount to S&P 500 valuations (compared with a 20-year average of 19%). In fact, our JPMAM U.S. Equities research analysts expect earnings growth for Big Banks & Brokers to accelerate from 9% in 2025 to 22% in 2026 (subject to revision).

• Net interest income is expected to improve significantly into 2026, a message reinforced by positive earnings guidance this quarter. This is driven by continually upward-sloping yield curves, steady balance sheet growth, and high deposit pass-through, positioning banks for stronger performance.
• Furthermore, loan growth will likely return as rates come down, and the U.S. economy avoids a recession.  
• Capital market activity is recovering as well, with M&A/IPO activity closing the gap towards 10-year averages, buoyed by lower rates and lighter regulation.
• Banks are also entering 2026 with more robust fundamentals and strong excess capital. Broad-based provisions, delinquencies, net charge-offs, and reserves have generally been better than feared.
• Ongoing deregulation will continue lowering capital requirements, in turn releasing balance sheet capacity for more lending, improving operating leverage, or return capital to shareholders. This could be a gradual process in driving business growth and regulatory cost savings.

Elsewhere, we are seeing opportunities in high quality, large-cap payments companies, given stable global consumption, and potential tailwinds from agentic commerce and tokenization driving high-margin growth.

Conversely, within Financials, the insurance sector's earnings trajectory looks less favorable due to intense competition, pricing pressures, and lower investment income resulting from moderating rates and market volatility.

Healthcare:

• After multi-year underperformance (since the end of 2021, healthcare has returned only 10% vs. 43% in the broader index in price terms), valuations are at relative lows (17% discount to the S&P 500 compared to a 20-year historic average of 7%). Despite the recent rally, we still see valuations as reasonable, with a lack of over-hyped stocks. As uncertainties around drug pricing and healthcare policy have lessened recently, we are focusing our attention on the long-term opportunities in the sector.
• From a demographic angle, Baby Boomers (born 1946-1964) are entering their senior years, driving up patient volumes and utilization rates for healthcare services, as well as demand for prescription drugs, medical devices, and insurance.
• From an innovation perspective, we are hopeful about the impact of artificial intelligence (AI) in drastically accelerating the drug discovery process, as proven by the first antibiotic drug halicin discovered using deep learning in 2020 by MIT. When traditional drug discovery relies on painstaking trial and error, a shortened discovery process leaves more time for the company to maximize profits during the patient exclusivity period, allowing companies to capture more value earlier in the earnings cycle.
• Healthcare tends to be highly company specific, a sector where investors can find low valuations, dividend yield, and innovation and growth, but rarely all three together, underscoring the need for active management in this area.

Industrials:

• While parts of the sector are suffering through a cyclical slump, powerful secular transitions like AI, automation, and re-industrialization are boosting others.
• The electrical equipment industry is benefiting from power grid upgrades to cope with rising electricity consumption from data centers, electric vehicles, and the energy transition. 
• Aerospace is also a bright spot as the commercial aviation fleet is aging, boosting manufacturing as well as maintenance sales. There are also long-term tailwinds like increasing global demand for travel and military spending, especially as Europe rearms.
• Railways could benefit from increased industrial production and may capture market share from trucking, which continues to suffer from oversupply post-COVID. 

Investment implications

Looking at the medium to longer term, developments within the tech sector will begin to spill over to other sectors as AI adoption broadens over time. This allows companies to improve operational efficiency, bringing earnings tailwinds. Transcript analysis indicates that ~60% of S&P 500 companies are investing in AI, with ~50% mentioning cost savings and efficiency gains. In the coming quarters, these numbers are likely to go up, with more companies providing concrete examples and estimates of AI-driven cost savings.

Even as the tech sector directly benefits from AI and grabs the lion’s share of market hype and attention, other sectors will also benefit not just from flow over effects of AI development and demand, but also from their own unique characteristics and specific growth drivers. Thus, it is important to diversify across sectors: not just focus on chipmakers and hyperscalers, but also on non-tech companies that can leverage AI to boost productivity.

Moreover, high-quality stocks have underperformed low-quality stocks year-to-date, resulting in quality compounders lagging the market and trading at a discount. Looking forward, quality remains an important factor for investors as markets get structurally more volatile and disruptive. Once fundamentals align and markets normalize, we see quality stocks returning to favor. 

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