Key insights
- The healthcare sector is outperforming the broader market and tech stocks, driven by its defensive characteristics and anticipation of improving cost trends. Positive outlook is further supported by demand for weight-loss drugs, AI in drug discovery, and demographic shifts. While lagging year-to-date, its recent momentum suggests a potential rotation from growth/tech into healthcare, offering a defensive play amid market uncertainty.
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Tech stocks are pulling back, and healthcare is surging.
The S&P 500's health care sector climbed over 1% Tuesday while the broader index lost ground, weighed down by a sell-off in tech shares. Over the past five sessions, healthcare was the best-performing sector, up close to 6%, while the broader index slipped about 3%. Major insurers such as Humana (HUM) and UnitedHealth Group (UNH) have been some of the biggest gainers during that time, with Humana shares up 13% and UnitedHealth adding about 10% over the past week amid anticipation of improving cost trends. Medical device makers such as Medtronic (MDT) and drugmakers like Eli Lilly (LLY) have also gained, with their shares up around 11% and 8%, respectively.
Healthcare stocks have long been seen as defensive plays, as medical products and services are often viewed as less sensitive to economic downturns, and may outperform other sectors in a risk-off environment.
The recent momentum highlights the sector's value as a defensive play, UBS analysts wrote Tuesday.1 The sector has outperformed the S&P 500 on 85% of the days when the benchmark was down 1% or more, the analysts said; between Wednesday and Friday, it outperformed tech by the widest margin over three trading days since 2002, according to Bespoke. (It has, however, lagged the broader market year-to-date: The healthcare sector is little changed for 2026, compared to the broader S&P 500's roughly 8% gain. Read Investopedia's full coverage of today's trading here.)
Expectations of growth tied to booming demand for weight-loss drugs and falling costs related to AI's use in drug discovery, along with demographic shifts that could raise healthcare needs, "underpins our positive outlook on the sector," UBS wrote.
SentimentTrader analyst Jay Kaeppel, who wrote in a report Monday that healthcare has "rarely performed worse relative to the S&P 500 Index," suggested its weak showing year-to-date could mean more gains ahead, making the present an "excellent buying opportunity."2
"Its time to put Healthcare back on the radar," he wrote.
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