Healthcare stocks may face difficulties in gaining momentum as Democrats prepare to take control of Congress, creating an uncertain outlook for the sector.
Uncertainty and Legislative Gridlock
Jared Holz, who covers healthcare for Mizuho, explained that the sector’s prospects remain unclear due to expected legislative gridlock among lawmakers. Speaking on CNBC’s “Fast Money,” Holz noted that investors should be selective rather than owning everything across the board.
“The next couple of years I really can’t see too much happening,” Holz said on Wednesday, adding, “I’m not sure you want to own everything, but you can pick and choose the names… Pharma is trading more expensive than tech for the first time in 20 years. So, I backed away from pharma. I would look at medtech.”
The State Street Health Care Select ETF (XLV) rose 3% immediately following Election Day. Holz observed a unique market dynamic where multiple categories worked together, though this occurred just before healthcare experienced a broader downturn during Thursday’s Wall Street sell-off.
Potential Catalysts and Subsector Strategy
According to Holz, a significant positive catalyst for healthcare might not emerge until a Democrat secures the presidency in 2028. This scenario could lead to the rollback of previous policies under President Trump, provided that Democrats also maintain control of both the Senate and the House.
For investors maintaining long positions in healthcare, Holz advised evaluating each subsector on an individual basis. He expressed skepticism regarding the quick reversal of regulations implemented over recent years, but suggested that investors optimistic about regulatory changes might consider medical device stocks currently trading at or near multi-year lows.
The State Street Health Care Select ETF concluded the week essentially flat, though it has climbed roughly 32% since President Trump assumed office in January 2025, outperforming the S&P 500 by nearly 9 percentage points.
