Healthcare stocks have far outperformed the broader market over the past month.
The healthcare sector has been on fire in recent weeks.
The S&P 500 Healthcare Sector index is up more than 6% since mid-October. That’s more than seven times the gain of the S&P 500 (^GSPC 0.05%) over the past month. And it’s the best-performing S&P 500 sector over that time by far. For investors, the Health Care Select Sector SPDR ETF (XLV 0.60%) is a great way to capture the entire sector.
What’s pushing healthcare stocks higher? Well, there are several factors behind it.
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Strength in pharmaceuticals
One factor helping the sector this past month was when major drugmakers Novo Nordisk (NVO 1.83%) and Eli Lilly (LLY +0.38%) made big news on Nov. 6. The two companies struck a deal with the Trump administration that would exempt them from tariffs for three years and give them access to Medicare and eventually Medicaid patients for their GLP-1 weight loss and diabetes drugs in exchange for heavily discounting the price of those named drugs.
In addition, on Oct. 30, Lilly released third-quarter results that blew past Wall Street’s expectations. It also raised guidance and announced that its GLP-1 drug tirzepatide is the world’s best-selling drug.
As a result, Lilly’s share price has soared 27% over the past month, which has helped drag the entire sector higher. The pharmaceutical giant has the largest market cap in the sector, and the S&P 500 is market cap weighted, meaning price increases of bigger companies’ stocks will move the index more.
Another drug giant, Pfizer (PFE 2.83%), struck a similar deal with the White House in late September. It will provide the company with protection from tariffs in exchange for lower drug costs. That stock is up about 4% over the past month.
Amgen (AMGN +0.22%) and AbbVie (ABBV +0.03%) shares have also climbed in recent days.
AbbVie, up more than 6% over the past week, released its quarterly results on Oct. 31, and it too bested analysts’ predictions. The company has a strong stable of top-performing drugs, including immunology drugs Skyrizi and Rinvoq, which have delivered robust sales growth. Management said it believes Rinvoq will hit $11 billion in annual revenue by 2027, and Skyrizi will reach the $20 billion mark.
And Amgen, which has soared almost 15% in a month, reported on Nov. 4 and also beat expectations on revenue and earnings. Its cholesterol-lowering drug Repatha was recently found to cut the risk of a first heart attack by 36%.
So there are several very strong performers in the health sector, particularly among drug manufacturers, which have some of the largest market caps in the healthcare sector.
A flight to safety
There also seems to be a flight to safety going on, as narratives that the market is overvalued continue to dominate the conversation. And healthcare stocks have a reputation as defensive stocks when the economy or the market turn south.
The turn to a more defensive posture can be seen with the consumer staples, energy, and healthcare sectors all outperforming the technology and consumer discretionary sectors over the past week. In fact, the high-flying “Magnificent Seven” stocks are down about 0.5% over the past week (as measured by the Roundhill Magnificent Seven ETF) as investors may be increasingly wary of a possible bubble in AI-related stocks.
Thus, it may be a very good time to put $1,000 into the red-hot healthcare sector.