Health Care Stocks Regain Momentum
After facing a prolonged period of stagnation, health care stocks are gaining traction, and recent upward trends are fostering optimistic expectations for growth through 2026.
This revitalization is underpinned by a noticeable shift in investor sentiment, prompting analysts to highlight health care as a favorable sector as 2026 approaches, indicating it might be a good time to invest or expand portfolios in this area.
Investment inflows into health care have surged. Between October 1 and November 17, more capital was funneled into this sector than any of the other ten market sectors.
The SPDR Health Care Select Sector ETF (XLV) saw an almost 9% gain over the previous four weeks, and over 16% in the last three months, rebounding after negative performance in 2024.
Sector Performance on the Rise
In October and early November, health care stocks began to outperform the S&P 500, achieving multi-month highs, primarily led by pharmaceuticals and followed closely by biotechnology.
This rejuvenation is part of a broader trend of shifting performance across sectors, as institutional investors begin diversifying away from technology-heavy portfolios into defensive sectors like health care.
Driving Factors Behind Investment
Several fundamental factors are propelling investment in health care:
- The aging U.S. population is set to drive consistent demand, with projections showing that more than half will be over 65 by 2030.
- Health care remains relatively insulated from economic downturns, as insured individuals continuously seek care.
- Long-term prospects appear solid, even amid a gradually slowing economy.
- Concerns around potential AI investment bubbles may lead to a redirection of capital toward health care.
Historical Trends Favor Health Care
The upcoming midterm elections in 2026 are amplifying interest in health care investments. Historically, the health care sector has outperformed the S&P 500 during midterm years by nearly 17% on average.
Notable Companies in Health Care
This sector includes well-known companies such as AbbVie, Amgen, and Merck. None of the companies that have consistently underperformed fall within health care, highlighting its resilience compared to other sectors.
As historical trends suggest, if 2026 sees market corrections, health care could offer notable opportunities for gains, especially in the medical devices sector, which has more potential than the broader health care category.
With advancements in AI expected to enhance diagnostic tools and accelerate drug development, health care remains a solid investment choice despite projections of lower overall market performance in the coming year.
Dave Sheaff Gilreath, CFP,® is a Partner Advisor at Sheaff Brock Investment Advisors, powered by Allworth Financial LP, an investment advisory firm registered with the SEC. Investments mentioned in this article may be held by Allworth Financial, affiliates, or related persons.
