Healthcare has outperformed the market over the past three months, thanks to promising biopharma developments and improved sentiment on large insurers, particularly those that serve seniors in the Medicare program.
Since mid-April, one of the biggest exchange-traded funds with a broad basket -- State Street Health Care Select Sector SPDR ETF, ticker XLV -- has gained 10.4%, versus 7% for the S&P 500.
XLV's top five largest holdings have all surpassed the S&P's 1.7% gain since mid-May: Eli Lilly (16.3%), Johnson & Johnson (10.3%), AbbVie (20.9%), UnitedHealth Group (7.5%), and Merck (14.6%).
Citi analysts on Wednesday laid out the recent appeal of biopharma stocks, as the NYSE Arca Pharmaceutical Index also outran the S&P in the last month.
The sector's "traditionally defensive nature finally took hold," Citi's Geoff Meacham said in a client note. Bouts of geopolitical instability, he continued, have been "pushing investors to look for relatively higher stability havens after a 1H26 fueled by risk-on appetite for tech trades."
Second-quarter earnings results, Meacham wrote, "will likely add to recent momentum in the sector."
AbbVie, which reports July 31, saw shares rise in late June after announcing plans to acquire Apogee Therapeutics for nearly $11 billion.
When GLP-1 maker Lilly reports earnings Aug. 5, Meacham expects strong results, as Wall Street focuses on "demand durability" for Zepbound and Mounjaro, along with uptake for recently launched Foundayo tablets.
Johnson & Johnson shares closed lower Wednesday after the company beat earnings estimates and raised guidance in its second-quarter report. Still, Morgan Stanley highlighted that new product launches remain the "key driver."
The company "reiterated line of sight on double-digit revenue growth by end of decade," wrote analyst Terence Flynn after the results. "The outlook is underpinned by 28 products/platforms generating >$1bn annual sales each," he added.
Beyond pharma, Wall Street has grown increasingly optimistic about a recovery for large insurers in the Medicare Advantage market. Stocks that faltered in 2024 and 2025 because of rising medical spending have gained this year. It's looking like insurers are better able to manage their costs.
UnitedHealth epitomizes the trend, with shares up about 34% in the last three months. The ultimately gained 1% Thursday after the company announced second-quarter earnings.
Coming off those results, Baird upgraded its rating on UNH to neutral.
"The primary driver of our upgrade is increased conviction on near-term Medicare Advantage margin improvement from the combination of aggressive management actions and MA cost trend deceleration," wrote analyst Michael Ha, adding: "we believe EPS and margin recovery could outpace expectations."
Write to Catherine Dunn at catherine.dunn@dowjones.com
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(END) Dow Jones Newswires
July 16, 2026 17:07 ET (21:07 GMT)
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