Healthcare Steps Up: The Dark Horse of 2025

SoFi’s Liz Thomas Says a Surprise Sector Could Shine in 2025

Investor anxiety keeps building as the year winds down, with Monday’s selloff showing no appetite for dip-buying. Concerns over AI and fading hopes for more Fed rate cuts continue to shake the market.

AI has been the go-to trade for 2025, but SoFi’s head of investment strategy Liz Thomas argues it may be time to look beyond tech. Her contrarian pick? Healthcare — a sector she believes could turn into a standout performer through 2025 and even into 2026.

Thomas admits the call looked risky at first. With HHS Secretary Robert F. Kennedy Jr. taking office and pushing early policy changes, the sector was bracing for impact and had a tough year. “It was definitely a contrarian choice going into 2025,” she told MarketWatch. “The sector was pricing in a lot of fear.”

But she still expects a strong catch-up trade, pointing out that healthcare could quickly close the gap with — or even overtake — industrials. Recent performance supports her case: healthcare has jumped from being one of the year’s laggards to outperforming financials. The XLV ETF is now up around 10% in 2024, compared with a little over 6% for XLF.

Thomas says investors rotating out of pricey tech names are hunting for growth that doesn’t come with stretched valuations. “Earlier this year, healthcare was in the bottom percentile of valuations versus the S&P 500. It doesn’t get much cheaper than that,” she said.

Pharma and biotech, in particular, are showing a promising mix of value and growth — something Thomas says could make healthcare a repeat pick for 2026 as SoFi finalizes its outlook. She also notes the sector tends to perform well in midterm election years, adding to its defensive appeal for 2026.

Heading into 2025, SoFi was broadly optimistic but cautious about two risks: inflation heating back up and AI falling short on monetization. Neither issue has surfaced yet, though Thomas still sees potential cracks in the AI trade.

One prediction that hasn’t hit: software beating semiconductors. Even so, she believes a rotation could still happen. “As tech investors become more valuation-conscious, software could be the next gateway that brings AI into real-world use,” she said.

After Monday’s nearly 800-point drop in the Dow, Thomas thinks excess speculation is finally being flushed out — especially in momentum pockets. Still, she expects a late-year chase as fund managers try to catch up.

Her warning: “Everyone thinks they’ll exit before a crash. You never know when it comes, but when stocks get this stretched, a reality check usually follows.”