Healthcare stocks have outperformed the S&P 500 by more than 22 percentage points over 100 trading sessions - the strongest relative performance since 2001
Healthcare stocks are seeing strong performance.
The typically boring healthcare space has delivered a flash of excitement for investors in October, building on its gains from earlier in the year.
But is this recent success just a flash in the pan, or the start of a meaningful stretch of outperformance? One Wall Street veteran said he is leaning toward the latter.
"No major S&P group has benefited more from the violent sector rotations of the last 4 to 5 months than healthcare," Nicholas Colas, co-founder of DataTrek, said in commentary shared with MarketWatch on Wednesday. "At the same time, its erratic history this decade suggests that it will be difficult to keep up this relative momentum over the next 100 days."
In the previous 100 trading sessions through Friday, the healthcare sector XLV outperformed the S&P 500 SPX by more than 22 percentage points - its strongest relative showing since January 2001, according to Dow Jones Market Data.
Valuation stretched
So far in 2026, the S&P 500 healthcare sector has gained more than 16%. Only energy stocks and information-technology names have fared better, according to FactSet data.
Valuations have climbed as a result. As of Wednesday, the forward price-to-earnings ratio for the healthcare sector was roughly on par with the tech sector, despite tech firms seeing much stronger earnings growth.
This premium valuation is one reason healthcare stocks may be vulnerable to a reversal, Colas said.
It's not the only risk, however. The healthcare sector has been responsible for many of the new jobs created in the U.S. over the past few years, according to official data. But the industry's slow-and-steady pace of profit growth hasn't exactly dazzled investors. For years, investors have talked about the potential for artificial intelligence to revolutionize drug discovery. Anthropic (ANT) highlighted it in a pre-IPO prospectus published earlier this week.
But according to Colas, the lack of a meaningful AI story has worked against healthcare since 2022. That could change in the not-too-distant future, as AI models continue to improve. Even so, performance over the past few years suggests the latest sprint higher could see a reversal in the coming weeks and months.
Since the start of this AI-driven bull market, pockets of outperformance for healthcare have been confined to a handful of sharp but short-lived rallies with little meaningful follow-through, Colas said.
Healthcare was having another strong session on Wednesday, according to FactSet data. It was among the top-performing in the S&P 500's 11 sectors, behind energy. On Thursday, investors will have a chance to parse the latest earnings from Eli Lilly (LLY), the sector heavyweight.
Mike DeStefano contributed
-Joseph Adinolfi
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