These Were the Hottest Sectors in 2025. Will They Continue to Be in 2026?
The S&P 500 has climbed roughly 17% in 2025, well above its usual 10% annual gain. Several key sectors—industrials, technology, and communication services—have driven this growth. Defense, AI infrastructure, and heavy machinery firms have seen some of the strongest gains.
Aerospace and defense stocks, which make up a quarter of the industrials sector, surged 46% this year. Rocket Lab USA led the charge with a 182.53% stock jump after landing its largest-ever contract from the U.S. Department of Defense. The company now supplies the American military directly. Meanwhile, Rheinmetall more than doubled its share price, benefiting from Europe’s defense rearmament and NATO’s expansion. Airbus also saw its price target raised to €255 by JPMorgan, which expects 15-20% earnings growth over the next five years in both aviation and defense.
The industrials rally extended beyond defense. Farm equipment and heavy machinery producers like **Caterpillar** and **GE Vernova** gained from recovering agriculture and manufacturing markets. In technology, the IT sector rose 24.9%, lifted by **Nvidia**, **Microsoft**, and **Apple**, along with semiconductor firms like **Broadcom**, **Advanced Micro Devices**, and **Micron Technology**. Analysts project capital spending by AI hyperscalers will nearly triple from 2022-2024 to 2025-2027, fueling further growth. Global demand for data center capacity is also expected to triple by 2030, with 70% of it tied to AI workloads. Communication services outperformed as well, thanks to **Alphabet** and **Meta Platforms**, two of the largest hyperscalers investing heavily in AI infrastructure.
The S&P 500’s 17% rise in 2025 reflects strong gains in defense, technology, and heavy industry. Aerospace and defense stocks alone jumped 46%, while IT and communication services also outperformed the broader market. Analysts expect continued growth as AI spending and defense contracts expand in the coming years.
