The Federal Reserve lowered interest rates in mid-December 2025, signaling a shift in market dynamics. As borrowing costs decrease, large institutional investors are reallocating capital from hardware and semiconductor stocks to sectors with more stable cash flows and reasonable valuations, notably Communication Services and Healthcare. This sector rotation reflects a broadening market after a year dominated by a narrow set of tech leaders.
Two funds are emerging as key beneficiaries: the Communication Services Select Sector SPDR Fund (XLC) and the Health Care Select Sector SPDR Fund (XLV). The XLC, upgraded to Overweight by multiple firms, capitalizes on resilient digital advertising revenues, with Meta Platforms and Alphabet comprising roughly 40% of its portfolio. Meanwhile, XLV, led by Eli Lilly—which represents around 15% of the ETF—leverages inelastic healthcare demand and pharmaceutical innovations to provide both stability and growth potential.
Both funds recently went ex-dividend on December 22, 2025, with XLV offering a yield of approximately 1.6% and XLC at about 1%, making them attractive for income-seeking investors in a lower-interest-rate environment. This combination allows for a balanced investment strategy, capturing growth in Communication Services while ensuring defensive stability through Healthcare as the market evolves into 2026.
