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Healthcare has lagged the S&P 500 over the past two years, with investors showing real interest in mega-cap tech and growth stocks based on the artificial intelligence (AI) boom. While a late-year rally in 2023 saw the sector staging a recovery, it did not stop healthcare from becoming one of the S&P 500’s worst-performing sectors in 2023 and 2024. The sector grew just 2.5% in 2024 compared with the benchmark index’s 23.3% jump.
While the healthcare sector's weighting in the S&P 500 has declined to a 25-year low of about 10%, total U.S. healthcare spending has more than tripled in roughly the same period, from $1.4 trillion in 2000 to $4.9 trillion in 2023. The segment witnessed major technological upheavals that should have a long-standing impact. Growth in key areas like telehealth, surgery, data analytics and biotechnology have aided in a big way. So far in 2025, the Health Care Select Sector SPDR has grown 6.4%. As a result, stocks like GeneDx Holdings Corp. WGS, Tenet Healthcare Corporation THC, Rigel Pharmaceuticals, Inc. RIGL and The Ensign Group, Inc. ENSG look poised to grow in the coming months.
The recent underperformance in the sector that characterized the last quarter after President Donald Trump nominated Robert F. Kennedy Jr. to lead the Department of Health and Human Services led to a slump of more than 10%. However, while RFK Jr. has long been a vaccine skeptic and some of his past comments have criticized groundbreaking drug developments, during the confirmation hearing, he distanced himself from the anti-vaccine movement and voiced support for HIV treatment and prevention drugs. This indicates that there may be a far more balanced approach taken by the Health Department than is currently being feared by investors.
An aging population dominated by Gen X and baby boomers and epidemics like obesity and diabetes have also helped the sector grow. Moreover, these stocks are considered defensive, meaning they tend to remain stable regardless of the prevalent market conditions. Regular demand for healthcare services is not dependent on the peaks and troughs of a market that has risen and fallen over the past two years over the Fed’s monetary policy.
The healthcare sector is poised for significant long-term changes, including the integration of AI in medical research. The sector also seems lucrative for investors looking for steady cash flow because pharmaceutical companies are known to offer regular dividends. While it is not having a great time currently, with the measures in place and the new tech delivering them, the time may be ripe to bet on the sector.