Where the Money Went…

Healthcare has been doing something rather un-healthcare-like lately.

Winning. A lot.

→ Eli Lilly LLY ( ▲ 0.66% )  
→ AbbVie ABBV ( ▲ 0.15% )   
→ Johnson & Johnson JNJ ( ▲ 0.99% ) 

All three have helped lead healthcare’s recent rally.

And the numbers are rather healthy.

Since the end of April, the S&P 500 healthcare sector has climbed roughly 23%, outperforming every other sector over that stretch.

Quite a performance for the part of the market investors traditionally visit when they’re looking for stability.

And investors aren’t coming back just to hide from technology.

Analysts are also finding reasons to get excited about the sector’s earnings outlook.

So Wall Street has found itself in an unusual position.

It’s looking for safety in a sector that’s been behaving rather aggressively.

Which raises a question worth examining.

Is healthcare becoming the market’s new safe haven, or has the supposed defensive trade turned into something else entirely?

Let’s take a closer look. ⇩

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Off the AI Diet…

Wall Street has spent plenty of time worrying about AI lately.

The spending. The borrowing. The question of when all those data centers start earning their keep.

Some of that money appears to be looking elsewhere.

According to Baird Strategas, over the 65 days ending October 19:

→ Healthcare ETFs: Attracted approximately $4 billion in net inflows.
→ Technology ETFs: Saw roughly $6 billion in net outflows.

That’s a $10 billion difference in fund flows.

Quite a change in mood.

Matt Orton, chief market strategist at Raymond James Investment Management, has even described healthcare as an “anti-AI trade.”

Essentially, investors looking to reduce exposure to the AI spending boom are finding an alternative in businesses with more established sources of demand.

→ Medicine.→ Medical devices.→ Healthcare services.

Things people tend to need regardless of how many GPUs a technology company orders.

And healthcare has another thing going for it:

✱ The earnings outlook is starting to look pretty healthy too. ↓

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More Than a Safety Net…

Healthcare has traditionally been Wall Street’s place to play defense.

Steady demand. Established businesses. Fewer sleepless nights.

But the earnings forecasts suggest the sector has something more ambitious in mind.

According to CFRA Research, here’s what analysts expect for 2027 earnings growth:

→ Healthcare: +22%
→ S&P 500: +16.8%

That’s a 5.2-percentage-point advantage for the sector investors are increasingly treating as a safe haven.

Not bad for the defensive team.

And the appeal goes beyond the earnings forecast.

Healthcare demand tends to hold up regardless of the economy, while new drugs, medical technology and expanding treatment markets still provide plenty of room for growth.

So investors are getting an unusual combination:

✱ A place to hide that may also know how to run.

Of course, forecasts are forecasts.

But for a sector attracting more defensive money, 22% earnings growth is a surprisingly aggressive prescription.

And some of healthcare’s biggest names are already helping set the pace. ↓

A Few Names…

Healthcare’s rally hasn’t exactly been short on familiar faces.

Three of the industry’s biggest names have helped lead the charge.

→ Eli Lilly LLY ( ▲ 0.66% ) : The pharmaceutical giant behind blockbuster diabetes and weight-loss treatments, including Mounjaro and Zepbound.

→ AbbVie ABBV ( ▲ 0.15% ) : A major drugmaker with businesses spanning immunology, oncology and neuroscience.

→ Johnson & Johnson JNJ ( ▲ 0.99% ) : A healthcare heavyweight with pharmaceutical and medical technology businesses.

All three helped lead the sector’s 23% rally since the end of April.

There’s another name worth mentioning.

→ Cardinal Health ($CAH), a major distributor of pharmaceuticals and medical supplies, has attracted attention from CFRA Research for its combination of growth potential and defensive characteristics.

The common thread?

These businesses serve demand that doesn’t necessarily disappear when economic growth slows.

People still need prescriptions. Hospitals still need supplies. Medical treatments don’t generally wait for the Nasdaq to recover.

A fairly useful business characteristic.

But lumping all of healthcare together can be misleading.

Drug approvals, patent expirations, competition and earnings surprises can send these stocks in very different directions.

So “safe haven” comes with some fine print.

Even healthcare has side effects.↓

Defensive, Until It Isn’t…

Healthcare may be Wall Street’s new hiding place.

But that doesn’t mean every stock comes with a safety guarantee.

a) Just ask Moderna MRNA ( ▲ 3.03% ).

Last week, shares plunged 18% in a single session after unfavorable data emerged from a trial of its personalized melanoma vaccine, developed with Merck.

A rather unpleasant reaction… but not alone.

b) Johnson & Johnson ($JNJ) offered another reminder earlier this month, when a disappointing earnings report helped drag the sector lower.

Then came Friday.

→ The S&P 500 healthcare index fell 1.1%, retreating from an all-time closing high reached the previous day.

! That’s the distinction worth remembering.

Healthcare businesses may benefit from steady demand.

Healthcare stocks still live and die by clinical data, earnings, valuations and expectations.

And after a roughly 23% rally since April, those expectations are no longer especially low.

Defensive business. Occasionally very offensive stock.

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