Update-3 2/15/26…More rotation ahead or waiting for Trump ” State of the Nation?”. Biotech stocks peaked on1/22 with the XBI at the $131 handle and now at $122.86.
Here are current sector trends YTD:
- Leaders: Energy Materials Consumer Staples; Laggards: Financials, Information technology, Consumer discretionary.
- The XLV healthcare ETF is up 1.85% YTD, up 7.71% over one year. and is bolstered by large cap biophrarma-PPH up 7.77% YTD, FBIOX up 2.35% YTD.; weaker because of US Mediacl Devices (IHI) down 7.47%.
- Biotech was out of the spotlight last week; IBB up 2.224% YTD, XBI up 0.76% YTD but down 2.26% last week in ‘”riisk off” trading.
Update-2 ..2/13….Disruption eases but way too early to call trends and pick tech stocks, but AMAT beat ( a top semi pick with less China risk) helps. AAPL down on memory chip squeeze. but VERTEX soars on Q4 2026 guided revenue to ~$13B 8-9% growth and pipeline. Green screen in large cap biopharma note Swiss: NVS and RHHBY near highs, XBI flat.
We need to better understand what is going on with Medtech, tools and diagnostics with TMO down 0.98% and IHI down 7.47% YTd but up today. With lagging MEDtech there could be other issues : TARIFFS and demand for procedures.
Update-1…Market fears disruption from AI and the fear is spreading beyond computer software. But first the good news is that Large Cap Biopharma was up: ABBV, JNJ, NVS, LLY, REGN, RHHBY, VRTX. Vertex was down about 1% after hours on a profit miss but a sales beat, from Yahoo: Vertex Pharmaceuticals (VRTX) reported strong Q4 2025 results, beating revenue expectations with $3.19 billion in sales, but missed profit estimates. The company also provided optimistic guidance for 2026, projecting revenues between $12.95 billion and $13.1 billion.
- Here is a surprise: ThermoFisher (TMO) was down 3.29% and 17% MTD! So even with an EPS forecasted growth of 7.8% there appears to be concern about long term growth and increassinng competition.
- The XLV was flat at $150.. We believe the healthcare sector will eventually become a huge opportunity for AI because of the importance of analyzing data from patients,testing, disease incidence, drug pricing and efficacy.
- Health sciences and technology took a surprising hit today with the Fidelity Medical Technology Fund (FSMEX) down 2.35% and down 14.63% for one month.
- The IBBand XBI were both down over 1% as you would expect on a day with the QQQ and the IWM down about 2%.
- So now with managing your portfolio you will not only have to pick the sector but understand how AI is disrupting business models.
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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.