Wall Street Strategist Reveals the Sectors Poised to Lead the Stock Market in a ‘Boring, Normal Year’ in 2026

After three consecutive years of double-digit gains, the S&P 500 is headed for “a boring, normal year,” according to one Wall Street strategist. 

“We think the bull run continues, but it’s not going to be the stampede” of the last three years, Jay Woods, chief strategist at Freedom Capital Markets, told CNBC on Tuesday. 

Woods expects the S&P 500 to rise between 3% and 5% over the next year to finish 2026 in the 7,200s. That’s one of the more bearish forecasts on Wall Street, where the median year-end S&P 500 target is about 7,650, according to CNBC’s most recent strategist survey.

Woods attributes some of the benchmark index’s expected tepid returns next year to changing market leadership, a transition that he observes is already under way. “We’ve seen a broadening of this market,” he said. “That broadening is going to continue.” 

Technology stocks, for the third straight year, fueled the market’s gains in 2025 as the AI boom accelerated. Big Tech is expected to spend about $400 billion on infrastructure—much of it dedicated to AI—this year, up from about $250 billion last year. That spending fueled sales growth and stock gains for AI’s “pick and shovel” makers, a group that spans the technology, communications, industrials and utilities sectors. 

But lately, AI investments have become a liability for the so-called hyperscalers—Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN), Meta (META) and Oracle (ORCL)—who investors worry may struggle to see adequate return on their massive investments. Woods expects those concerns to continue to pressure shares of tech giants, whose market capitalizations in the trillions make them the most important stocks in the capitalization-weighted S&P 500. 

“There are going to be winners and losers in technology,” Woods said. “It’s not ‘AI is lifting all stocks,’ and as a result, some of those mega caps may take a little bit of a pause.” Instead, Woods sees more ho-hum sectors—such as industrials, transportation and financials—leading the market next year as investors reward their “slow, steady growth.”

While Woods predicts a “boring, normal year” in terms of what stocks lead, the road to next December will be far from boring, he says. Midterm elections in November are expected to increase volatility, as could a sharp pivot from the Federal Reserve, which will have a new leader in May. 

Investors could also be thrown a curve ball early in the year when the Supreme Court rules on President Donald Trump’s signature “Liberation Day” tariffs. “If they deem tariffs illegal … it’s gonna cause uncertainty,” which is what weighed on markets for much of the first half of 2025, according to Woods.