Investors pivot to healthcare as tech dominance fades

The S&P 500 healthcare index has climbed 11.2% over the last three months, hitting record highs and significantly outpacing the broader market’s 6% gain. After three months of net withdrawals, the influx of capital signals a broader repositioning as fund managers move toward what J.P. Morgan analysts describe as a rare combination of durable growth and attractive valuations. Global managers are now net 32% overweight on the sector, a sharp increase from 14% in June.

Financial performance is anchoring this optimism. After a 16.7% earnings contraction in the second quarter of 2026, analysts at LSEG project consistent double-digit growth from the final quarter of 2026 through 2027. Recent results from industry heavyweights like AbbVie and UnitedHealth Group have already outperformed expectations, providing the necessary momentum to validate the market’s pivot.

Dealmaking activity is further intensifying the sector's appeal. M&A volume has reached nearly $284 billion this year, nearing the 2025 total of $306 billion. While some analysts caution that this rotation could mirror the 2022 tech selloff—where investors briefly abandoned tech before returning—others argue that current movement into overlooked areas is more sustainable. Furthermore, market strategists view a potential divided government in Washington as a protective buffer, reducing the likelihood of aggressive, earnings-pressuring legislation during the upcoming election cycle.