FOUNDATIONS STRENGTHENED FOR FUTURE GROWTH
While it’s customary to offer informed predictions as we look ahead to a new year, 2025 was a year that seemed to be more unpredictable than many in recent memory, especially from a U.S. policy and political standpoint. With the anticipation of consequential events in 2026, that unpredictability is not likely to diminish. The consumer is still facing lingering inflation and health insurance cost increases, which may at least partially be offset by tax cuts. In addition, the expected Supreme Court ruling on the Trump Administration’s tariffs, change of leadership at the Fed, re-negotiation of NAFTA, and mid-term elections in November are just a few among many factors that could also drive the U.S. economy and markets in 2026. Importantly, corporate earnings remained strong this past year. The potential risks posed to revenue and earnings growth from fiscal policies did not materialize, and both the consumer and broader economy continued to be resilient. Whether that continues and if the market shrugs off the unknowns again in 2026 are open questions.
SECTOR VIEWS
During the quarter, value outperformed growth across small-, mid-, and large-cap during the quarter. Large cap value led market returns for the quarter, while large cap growth is the strongest performer for trailing one, three and ten years. Small and mid-cap names continue to lag their large-cap counterparts for all longer time periods. From a sector perspective, health care and communication services outperformed, while real estate and utilities lagged. Against this backdrop, we continue to adhere to our disciplined investment approach by staying focused on high-quality companies with enduring competitive advantages despite these uncertainties. We continually monitor the evolving environment for new opportunities, while maintaining an emphasis on long-term growth and risk management.
- INFORMATION TECHNOLOGY
- HEALTH CARE
- FINANCIALS
- MIDSTREAM INFRASTRUCTURE
- UTILITIES
After several quarters of outsized gains, growth leadership in the tech sector cooled as investors rotated toward cyclical or value-oriented areas. Trepidation around richer multiples left little room for earnings disappointments, and several companies experienced share price pullbacks even when results met expectations.
Looking ahead, the technology sector entered 2026 on stable footing, with expectations more balanced between ongoing innovation and valuation discipline. Easing monetary policy and continued enterprise adoption of digital and AI technologies provide important structural tailwinds, while investors remain focused on earnings visibility, free cash flow generation, and the conversion of large-scale infrastructure investment into durable software and services revenue.
Supply-chain stability will remain a central consideration for technology firms that operate within complex global ecosystems. Energy management has also gained prominence, as AI workloads expand across data center footprints and increase overall power requirements. Regulatory developments may shape data usage or competitive dynamics, yet technology’s role at the center of global innovation appears secure, which points toward disciplined, innovationled growth over the medium term.
The S&P Composite 1500 Health Care Index advanced 11.2% in the fourth quarter, outperforming the S&P 500.
The sector’s recovery in the second half of 2025 was driven by strong performance in high-growth subsectors, with biotechnology and pharmaceuticals accounting for most of the fourth-quarter gains.
Despite this progress, the sector continues to trade at a large discount to the broader market, creating what we believe are compelling long-term value opportunities. As positive momentum continues, we expect a gradual rerating of the sector, and while challenges remain, we believe calendar year 2026 could offer some of the most attractive single-stock opportunities in many years, supported by improving sentiment, operational resilience, and continued innovation.
For the fourth quarter of 2025 the S&P 500 Index’s financials sector was up almost 2% (slightly underperforming the S&P 500 Index).
We continue to see solid fundamentals across a broad range of business models, along with an improving global macro (primarily credit conditions and the consumer holding up well). We are also seeing ongoing improvement in inflation expectations (with the Fed easing to a new target rate of 3.75-4.0%) as we transition into 2026. Finally, the new administration’s agenda and its future implications around lower taxes (especially around capex spending), less balance sheet capital requirements, and less regulation (one that is perceived as pro-business and pro-growth) has been an additional catalyst behind improving earnings growth expectations across multiple sectors and industries.
Overall, the large money center, consumer finance, and super-regional banks are significantly better positioned today across a broad range of balance sheet, capital, and risk management metrics. Meanwhile, valuations in the sector have normalized. Tailwinds for future earnings growth will be primarily driven by solid revenue trends and credit controls; growing net interest margins; ongoing expansion of fee-based business opportunities; and continued efficiency improvements through better use of technology and AI.
During 4Q25, the Alerian Midstream Energy Index (AMNA) was down -1.4%, underperforming the 2.7% return of the S&P 500 Index.
Oil prices continued their decline ending the year at levels lower than at the beginning of the year, while natural gas spiked off multi-year lows due to seasonal electricity demand and expectations that the long-term need for new electricity generation will benefit natural gas—the most environmentally friendly fossil fuel. We still strongly believe that long-term natural gas demand growth remains a positive tailwind and recent bolt-on investment projects have the potential to drive accelerated cash flow growth over the next three to five years.
Over the longer-term, midstream energy companies will play an important role in our energy future. The global energy transition will require multiple sources of energy to be successful and hydrocarbons – especially natural gas - will continue to have a role, driving future demand not just for the commodities but for the essential logistical systems that move them. With physical steel in the ground, midstream energy infrastructure companies have difficult-to-replicate asset networks with high barriers to entry, and whose adaptability to transport other energy sources is underappreciated. Management teams are increasingly aware of the role they will play in our energy future, focusing not just on the environmental impact of their operations but also on how their asset bases can and will be part of a greener future.
Overall, utility stocks were negative in 4Q25 and underperformed the broad S&P 500 Index. However, the industry’s multi-year outlook for revenue and earnings growth is more promising today than at any time during the past 30 years, in our view.
After a volatile 1Q25, the robust outlook for AI-related infrastructure capex and an anticipated reduction in regulatory uncertainty gave us confidence that U.S. power generation stocks would perform better in the 2H25 and the 2H25 resulted in providing several positive fundamental datapoints for the industry. It also provided powerful reminders that the benefits of AI-related power demand also extend to regulated electric utilities, as several companies also announced deals to supply power to new hyperscaler data centers and/or increased their EPS growth guidance based on higher demand growth forecasts. We believe strong long-term fundamentals and still-reasonable valuations underscore the opportunity in the utilities sector.
Continued solid execution, along with the potential growth opportunities from renewable energy investments, should help to drive the sector’s earnings going forward. Strong fundamentals and macro factors underscore the opportunity in the sector, in our view, especially given what remains a lower-than-average interest rate environment.
Source for all data points: Jennison, January 2026
For Financial Professional Use Only. Not for use with the public.
Alerian Midstream Energy Index is a broad-based composite of North American energy infrastructure companies and is a capped, float-adjusted, capitalization-weighted index whose constituents earn the majority of their cash flow from midstream activities involving energy commodities. Alerian MLP Index is the leading gauge of energy infrastructure Master Limited Partnerships (MLPs) and is a capped, float-adjusted, capitalization-weighted index, whose constituents earn the majority of their cash flow from midstream activities involving energy commodities. Nasdaq Biotechnology Index contains securities of Nasdaq-listed companies classified according to the Industry Classification Benchmark as either Biotechnology or Pharmaceuticals which also meet other eligibility criteria. S&P 500 Index is an unmanaged index of 500 common stocks of large U.S. companies, weighted by market capitalization. It gives a broad look at how U.S. stock prices have performed. S&P 500 Financials Index comprises those companies included in the S&P 500 that are classified as members of the Global Industry Classification Standard (GICS) financials sector. S&P Composite 1500 Health Care Index comprises those companies included in the S&P Composite 1500 that are classified as members of the Global Industry Classification Standard (GICS) healthcare sector. S&P 500 Technology Index comprises those companies included in the S&P 500 that are classified as members of the Global Industry Classification Standard (GICS) technology sector. S&P 500 Utilities Index comprises those companies included in the S&P 500 that are classified as members of the Global Industry Classification Standard (GICS) utilities sector. Indices are unmanaged and an investment cannot be made directly into an index.
Risks—Investing involves risks. Some investments are riskier than others. The investment return and principal value will fluctuate, and shares, when sold, may be worth more or less than the original cost. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, and political and economic uncertainties. Emerging and developing market investments may be especially volatile. Emerging markets are countries that are beginning to emerge with increased consumer potential driven by rapid industrial expansion and economic growth. Investing in emerging markets is very risky due to the additional political, economic, and currency risks associated with these underdeveloped geographic areas. Investments in securities of growth companies may be especially volatile. Due to the recent global economic crisis that caused financial difficulties for many European Union countries, eurozone investments may be subject to volatility and liquidity issues. Value investing involves the risk that undervalued securities may not appreciate as anticipated. It may take a substantial period of time to realize a gain on an investment in a small or midsized company, if any gain is realized at all. Diversification and asset allocation do not guarantee profit or protect against loss.
The views expressed herein are those of Jennison Associates investment professionals at the time the comments were made and may not be reflective of their current opinions and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute an offer to sell or a solicitation to buy any security.
Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information, nor do we make any express or implied warranties or representations as to the completeness or accuracy. Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated, based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.
This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients. The information is not intended as investment advice and is not a recommendation. Clients seeking information regarding their particular investment needs should contact their financial professional.
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