Key Points
- In 2026, the stock market rally will likely be driven by industrials, consumer staples, and energy sectors, while tech stocks may struggle as investors shift their attention to profits beyond AI-focused trading.
- Companies like Caterpillar, Walmart, and Exxon are capitalizing on trends from AI infrastructure buildup, cautious consumer spending, and surging oil prices.
- Though top stocks in these sectors have shown robust gains this year, Morningstar analysts do not view any of them as undervalued.
The stock market is undergoing a noticeable rotation. Industrials, consumer staples, and energy stocks are significantly outperforming the overall market, compensating for declines in technology, communications, and even financial sectors. Investors seem to prefer “real economy” companies—those engaged in producing tangible goods and essential services—over more speculative assets, particularly in these uncertain times.
The industrial sector contributes 1.36 percentage points to the global total, and according to Morningstar data, it has increased by 0.93% this year up to February 18. Companies like Caterpillar and GE Vernova have had a notable impact on sector revenues.
Meanwhile, consumer defensive stocks have risen by 13.3%, contributing 0.6 points to the overall market, with Walmart and Costco leading the pack.
Energy stocks have surged even more dramatically, climbing over 22% since the year’s start, though they carry less weight in the U.S. market compared to industrials and consumer staples, adding 0.64 points to market returns. ExxonMobil and Chevron have been the standout performers in this sector.
All six key companies featured here posted substantial profits this year—with Caterpillar’s 32% gain being particularly striking. Nevertheless, this strong performance doesn’t imply that these stocks are undervalued, according to Morningstar analysts. It’s important for investors to take note.
Industrials
Year-to-date, industrial stocks have increased by more than 16%, with Caterpillar being a major contributor, accounting for 1.9 percentage points—or about 12%—of the sector’s overall performance. Analysts from Morningstar suggest that Caterpillar is particularly well-positioned to benefit from the growth of AI infrastructure, as its products are increasingly utilized to power data centers housing AI technology.
GE Vernova, which was spun off from General Electric in 2024, represents 1% of the industrial sector’s profits this year.
Caterpillar
“We share the management’s view that there are considerable tailwinds in key markets as the global economy shifts towards sustainable energy, potentially allowing for growth that outstrips GDP in the long run. Therefore, we anticipate mid-to-high single-digit growth for the company in the next five years, targeting operational margins between 21% and 25%, with sales nearing $100 billion annually.”
—George Magreles, Analyst
GE Vernova
“Historically, GE Vernova has been a leader in several market segments, like gas power generation and onshore wind in the U.S. However, its profit margins have not reflected this leadership. As an independent entity focused on specific markets, it is poised for meaningful profit growth in the years to come.”
—Brett Castelli, Analyst
Consumer Defensives
As consumer spending declines, many American households are gravitating towards more economical grocery options, prompting investors to favor consumer defensive stocks, which are likely to benefit from these trends.
Walmart and Costco have made significant contributions to earnings in 2026. Walmart’s revenue growth of 13.7% accounted for 2.3 percentage points of its sector’s 13.3% rise this year, while Costco’s 15.7% increase contributed about 2.1 percentage points to the sector’s overall performance.
Both retailers received a 1-star rating from Morningstar analysts, indicating they are regarded as significantly overvalued. Among the more affordable options in the sector, Morningstar’s Chief U.S. Market Strategist Dave Sekera favors Mondelez International and Constellation Brands, both rated 4 stars.
Walmart
“Even with competition from companies like Amazon, Shein, and Temu, we believe Walmart’s scale, data integration, and supply chain investments provide lasting advantages that ensure its relevance and sustainable margins. With 4,600 stores within a 10-mile radius of 90% of Americans, Walmart’s locations act as a logistics network, enhancing our omnichannel cost efficiency.”
—Brett Hassline, Analyst
Costco
“In the short term, we expect low single-digit revenue growth, driven by strong comparable sales, modest membership expansion, and store openings. The U.S. remains our core market, with over 600 warehouses generating approximately $320 million each in annual sales and the potential to add around 15 new locations every year. Nonetheless, we believe our most promising growth opportunities lie internationally.”
—Brett Hassline
Energy
This year, the energy sector has demonstrated the strongest performance, aided by a roughly 12% increase in oil prices. Exxon has risen by 26%, contributing over 7 percentage points—or about 32%—to the sector’s return of 21% since January 1. Following a recent outlook that suggests higher profits and reduced capital expenditures in the coming years, Morningstar analysts have upped their fair value estimate for Exxon’s stock from $129 to $142 per share.
Meanwhile, Chevron experienced a return of 21.8%, accounting for 3.4 percentage points of the sector’s overall return. Analysts note that Chevron plans to boost production in Venezuela by about 50% over the next 18 to 24 months. Both stocks hold a 3-star rating and are seen as good value investments.
Exxon Mobil
“Exxon is increasing expenditures compared to previous years, breaking industry norms to target $25 billion in revenue growth by 2030. Although this rise in spending could raise eyebrows, given the industry’s past focus on growth at the cost of profits, we believe Exxon’s unique portfolio enables it to pursue growth while maintaining capital discipline and delivering solid returns.”
—Allen Good, Analyst
Chevron
“After a challenging year, Chevron enters 2026 well-positioned, boasting low debt, strong production growth potential, and progress toward its cost reduction goals of $3 billion to $4 billion by the year’s end. By focusing on reducing costs and enhancing high-margin production, we are optimistic about achieving our earnings growth and margin improvement targets.”
—Allen Good
