U.S. Services Sector Expansion: Navigating Sector-Specific Opportunities in a Resilient Economy

The U.S. services sector has delivered another strong performance, with the December 2025 ISM Non-Manufacturing New Orders Index surging to 57.9%, a 5-point jump from November and the highest reading since September 2024. This robust expansion, driven by end-of-year bookings and seasonal demand, underscores the sector's resilience and its role as a cornerstone of economic growth. For investors, the data offers a roadmap to identify sectors poised for momentum in 2026.

Sector-Specific Momentum: Where to Focus

The December report highlights nine industries driving new orders growth, including Mining, Transportation & Warehousing, Finance & Insurance, and Health Care & Social Assistance. Each of these sectors presents distinct investment opportunities:

1. Transportation & Warehousing: With e-commerce and global supply chain recovery, logistics firms are seeing heightened demand. Companies like J.B. Hunt Transport Services (JBT) and XPO Logistics (XPO) could benefit from sustained freight activity.

2. Health Care & Social Assistance: Aging demographics and increased healthcare spending are fueling growth. ETFs such as the iShares U.S. Healthcare Providers ETF (IHF) or individual stocks like UnitedHealth Group (UNH) offer exposure to this expanding market.

3. Finance & Insurance: A rebound in business lending and insurance demand, particularly in commercial property and casualty lines, points to strength in financial services. The Financial Select Sector SPDR ETF (XLF) tracks this space, while banks like JPMorgan Chase (JPM) may see improved net interest margins.

4. Retail Trade and Wholesale Trade: Holiday-driven consumer spending and inventory restocking are boosting these sectors. Retailers with strong e-commerce platforms, such as Walmart (WMT), and wholesale distributors like W.W. Grainger (GWW), are well-positioned.

Caution in Contracting Sectors

While the expansion is broad-based, six industries reported declines in new orders, including Professional, Scientific & Technical Services and Accommodation & Food Services. These sectors face challenges such as reduced corporate spending on consulting and a post-pandemic normalization in hospitality. Investors should monitor these areas for potential volatility, particularly in hospitality stocks like Marriott International (MAR) or tech services firms.

Capital Expenditures and Employment: A Tailwind for Growth

The services sector's capacity utilization rate hit 90.2% in December 2025, up from 86.5% in May, signaling efficient resource deployment. With capital expenditures projected to rise 2.5% in 2026, companies investing in infrastructure—such as Duke Energy (DUK) in utilities or Caterpillar (CAT) in construction—could see outsized returns. Additionally, employment growth of 2.5% in 2026 suggests continued demand for labor, benefiting staffing agencies like Adecco Group (ADZI).

Strategic Investment Takeaways

• Diversify Across Expanding Sectors: Allocate capital to ETFs or stocks in high-growth industries like healthcare, logistics, and finance.
• Hedge Against Sector Volatility: Use sector rotation strategies to reduce exposure to contracting areas like hospitality.
• Monitor Inflation and Interest Rates: While services prices are expected to rise 4.2% in 2026, central bank policy will remain critical. Investors should favor companies with pricing power and low debt.

The U.S. services sector's expansion is not just a short-term blip but a structural trend. With 16 of 18 service industries projecting revenue growth in 2026, the data reinforces a long-term bull case for the sector. For investors, the key lies in aligning portfolios with the industries leading this charge while staying agile in the face of sector-specific headwinds. As the economy transitions into 2026, the services sector will remain a vital engine of growth—and opportunity.