While healthcare stocks have modestly underperformed the broader U.S. equity market in recent years, the performance disparity was far more pronounced in 2024. By mid-December on a year-to-date basis, the S&P 500 Health Care index is up just 5.29%. That significantly lags the broader S&P 500's 28.54% year-to-date gains.1
Through mid-September, the Health Care sector returned 16.3%, only modestly underperforming the broader S&P 500 index. “The market, at that point had broadened out, and strong performance extended beyond the technology-oriented stocks that previously dominated the market,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management. However, from Sep. 16, 2024, to December 12, 2024, healthcare stocks included in the S&P 500 dropped nearly 10%.
“The sector should be positioned to benefit in the long run from an aging population, which requires more healthcare spending,” says Haworth. “However, at least in the short term, that hasn’t been working.” One factor coming into play recently is Donald Trump's election to the presidency for a second term. Trump named Robert F. Kennedy, Jr., a critic of traditional healthcare services, including pharmaceutical companies, to be his administration’s head of the Department of Health and Human Services. The potential impact of this appointment on the healthcare industry adds a degree of near-term market uncertainty.
Widely-dispersed performance
Wide stock performance dispersion is a healthcare sector characteristic. “If you look closer, there’s a significant differentiation of performance between winners and losers within the industry,” says Haworth. For example, Eli Lilly & Co. stock enjoyed dominating performance dating back to 2022, as the popularity of its drugs aimed at treating diabetes and obesity proved extremely profitable. By contrast, Pfizer’s stock soared beginning in late 2020 and through 2021 on the strength of its leadership role in delivering COVID-19 vaccines. However, the company’s stock has struggled more recently as it awaits its next big breakthrough. Pfizer’s stock, long a staple of the health care sector’s ten largest stocks, has now dropped out of the top ten.