Healthcare stocks rally and become a defensive haven amid AI worries

what happened

According to the Wall Street Journal, healthcare stocks no longer trade at a discount to the broader market. The Health Care Select Sector SPDR ETF (XLV) now sits slightly above the S&P 500, at 19.3 times forward earnings, per FactSet. A year ago the sector traded at a 25% discount. The shift follows growing anxiety about a tech bubble and worries that rising rates could curb AI spending.

WSJ notes that the sector usually commands a premium when investors feel confident about medical innovation, are wary of profits elsewhere, and are at ease with policy risks. Asad Haider, a Goldman Sachs biopharma analyst, says those conditions largely hold today. He also argues a higher multiple is not necessarily a warning sign, pointing to Johnson & Johnson's forecast of double-digit sales growth by the end of the decade.

Policy risk remains uneven. Jared Holz of Mizuho says insurers such as UnitedHealth Group and Humana could face pressure if talk of Medicare for All grows louder. Drugmakers and device makers, by contrast, face a calmer outlook than in years.

why it matters

For markets, this suggests capital is rotating from tech toward steadier, less cyclical sectors. If the trend holds, it could keep supporting healthcare funds while AI concerns persist. WSJ compares the situation with the mid-2000s, when the sector also kept a premium amid rising Fed rates.

market impact

Healthcare and XLV: rotation out of tech supports defensive sectors; insurers exposed to policy risk

tags

instruments