The S&P 500 index is widely considered to be the benchmark for the entire U.S. stock market. The index holds the stocks of about 500 of the largest companies in the U.S. and is diversified across sectors.
It is a market capitalization (market cap)-weighted index, which means that the larger a company is by market cap (its share price multiplied by its shares outstanding), the larger the percentage of the index it becomes. As such, how the stock of a large company like Nvidia performs is going to impact the index's performance much more than a smaller company.
This Darwinian mechanism of survival of the fittest has propelled the S&P 500 to strong returns over the years, with the index producing an average annual return of over 14.6% the past 10 years. Meanwhile, only about 14% of actively managed funds have been able to top the S&P 500 over this period.
However, I do think there are two index exchange-traded funds (ETFs) that are good bets to outperform the S&P 500 next year.
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The Invesco QQQ Trust
Growth stocks have nicely outperformed value stocks over the past decade, and with artificial intelligence (AI) looking like it is still in its early stages, I think there is a good chance that this trend will continue. That's why the Invesco QQQ Trust (QQQ 0.78%) is a good bet to outperform the S&P 500 in 2026.
The ETF mimics the performance of the Nasdaq 100 index, which consists of the 100 largest nonfinancial companies that trade on the Nasdaq exchange. The Nasdaq has long been home to most top tech stocks, and as such, it is largely made up of companies from the sector (more than 64%) and other growth stocks.
Like the S&P 500, the Nasdaq 100 is a market-cap weighted index, and so, with an investment in the ETF, investors are getting a heavy dose of top tech stocks, like Nvidia, Apple, Microsoft, Alphabet, and Amazon.
NASDAQ: QQQ
Key Data Points
The ETF has also easily outperformed the S&P 500 over the past decade, with an average annual return of 19.6%. Even more impressive is that on a rolling 12-month basis, it's performed better than the benchmark index nearly 88% of the time. That shows that its outperformance isn't just coming from one or two big years, but that it's been consistent.
With megacap growth stocks looking like they could lead the market higher again in 2026, the Invesco QQQ Trust is an ETF to own.
The Global X Artificial Intelligence & Technology ETF
AI has been the market's biggest driver over the past two years, and with the AI boom looking poised to continue, the Global X Artificial Intelligence & Technology ETF (AIQ 0.67%) is a strong option to outperform the S&P once again in 2026.
The ETF tracks the Indxx Artificial Intelligence & Big Data index, a custom index made up of about 85 companies that are poised to benefit from AI. The index selects 60 companies from around the world that have developed AI for their own use or that of customers, while it picks another 25 AI hardware or quantum computing stocks.
One of the nice things about the ETF is that it takes a global approach, so international AI companies, such as Alibaba Group and Taiwan Semiconductor Manufacturing, that often get left out of other index ETFs are not only included, but among its top holdings. Overall, nearly 70% of its holdings are in U.S. companies, with the rest from international markets.
NASDAQ: AIQ
Key Data Points
The ETF has been a strong performer recently, up an average of 37.4% over the past three years and nearly 33% this year, as of the end of September. If AI continues to power the market higher again next year, the Global X Artificial Intelligence & Technology ETF should once again outperform.
