Wild Week of Rotation: Review your portfolio for re-balancing.
- Healthcare stocks show less volatility and better performance because of large cap biopharma.
- Rebalance your portfolio weekly to account for sector strength.
- Small caps are poised to rally in 2026; IWM and XBI.
The volatility of last weekending 2/6/26 reinforced a thought I’ve had about the market, that tracking sectors and understanding their context is key to understanding the economy and trends . First look at what happened on Friday with the huge move up- a pivot to end the bearish sentiment. We’ll see the follow through this week. We track major sector performance through the State Street Select SPDR ETFs however we use iShares ETFs as well such as the XBI for SMID biotech tracking. And as we mentioned in several posts recently, a retail investor can do well in Healthcare and biotechnology in a given year by picking 2 or 3 ETFs/Funds to develop your sector strategy:.
Here is 2026 performance (wk ending 2/6/26) by sector for individual State Street SPDR ETFs where the S&P 500 (SPY) was flat over 5 days and the leading sectors were:
- LEADERS: Consumer staples up 5.3%, Industrials 4.68%, Materials 4.55%, Energy 4.31%.
- Laggards: Infotech (1.91%), Consumer Discretionary(2.62%), Comm Services (3.6%).
- Healthcare(XLV)was in the middle up 1.92%.
- Biotechnology: XBI SPDR S&P Biotechnology ETF: Up 0.61%, 2.94% YTD, 34.4% one year.
But looking at Specific ETFs that track segments of the Healthcare market as I’ve tracked over the years the 2026 performance is :
- Biotechnology: Blackrock iShares Biotechnology IBB ETF Five days up 1.48%,YTD 3.68% One year 24.49%.
- MedTech:iShares US Medical Devices ETF (IHI) : Five days down 2.86% YTD, down 6.86% YTD, One year: (10.34%)
- Prioviders: US Healthcare Providers ETF: down 0.99%, down 6.53% YTD, One year down 14.94%
- ARK Funds:: ARK Genomic Revolution ETF: Five days ARKG down 5.39%,YTD, up 0.72% , One year up 2.3! %.
- The Van Eck Pharmaceutical ETF (PPH) tracks large cap biotechs: Five day up 3.41%, YTD up 7.06%, One Year 23.05%.
- Tools and Diagnostics: no ETFs but TWO major funds : FSMEX and PRHSX.
RotationTrends in the market in Q1 2026
1.) General Sector: for past 3 months the leading sectors are Materials, Energy and Industrial. Technology has been weak.
2,) Within technology: A trade has developed to sell application software ETFs and stocks held in the IGV at $84.68 down 18.92% MTD and buy AI platforms such as represented by MAGS at $63.89 down 3% MTD. Simply put they sell stocks like Adobe, intuit and Salesforce because they fear market share will go to the biggest AI Revoution players like Anthropic, Open AI and Alphabet.
3.) Healthcare: Many strategists believe that healthcare will outperform many other sectors in 2026 because of steady growth in demand, less volatility an sensitivity to economy and an aging population. In a previous article we have broken down the healthcare sector into: biopharmaceuticals, Medtech, Providers and Diagnostics and Tools.
Our best calls this year came with large cap biopharma earlier in 2025 followed by a year-end Q4 rally which exceeded our expectations up 27% for the year with the IBB. Picking large cap biopharma stocks did much better. Our trades in SMID stocks did much better but required too many trades which caused me to ask : “Are you a trader or long term investor?”. Apparently you can use your instincts leveraged at times with margin, in a Momentum Driven market to make profitable trades with annual returns exceeding 50%!. But in a true bull market as in 2025 one can also beat market indices with an ETF and a FUND or two and get a 25% return.
The key market for 2026 will be the innovation trade represented by the Russell 2000 (IWM), currently at $267.34 up 0.89%. , 7.74% YTD, as of 11am EST.