Sector Watch: Healthcare holds up But Small Caps Take a Hit
- Healthcare losses abating but damage is most severe in SMIDs biotech.with RSI’s dropping.
- When XBI shows upside momentum individual biotechs are tradeable.
- Large cap biotechs are still best for a core healthcare portfolio. but are off their 2026 highs.
Y’all know by now the best sector of the market in 2026 is energy with the XLE up 37.6% YTD, with even greater returns in refining, drilling and exploration stocks. Crude ended last week at a price of $102.79 because of the HORMUZ stranglehold on oil shipments out of the Persian Gulf.
Healthcare stocks did better last week with the XLV down only 0.59% for the week and down 5.89% YTD, helped by gains in ABBV, MRK and REGN and others. But lagging subsectors were still down especiallly MedTech with the US Medical Devices (IHI) down 2.1% for the week and 15.14% YTD. And a top rated fund Fidelity Medtech (FSMEX) down 18% YTD. So called Health Science stocks did a tad better with the PRHSX still down almost 10% YTD. Some of the well known growth stocks in these sectors are not having a great year but should be on your watch list for a recovery: ABT, MDT, ISRG, SYK– we are long all four and look for an upgrade or an improved sector outlook. Note; if you don’t like the volatility of SMID caps then park your money in XLV that is more defensive with UNH and TMO at one year lows
Biotech has growth, innovation and M&A
So what can you do if you what to re-balance or trade healthcare stocks? Maybe look at SMID biotechs despite the issue of a weak XBI barely holding the $119 level and off 2026 highs off January 22 highs at $132. With better news on the War or news from M&A or specific stocks the XBI can regain momentum. The issue lately with SMID caps is the geopolitical turmoil given bearish signals causing investors to pull away from the Russell 2000 (IWM) also off 1/22/26 highs of $270 now at $240, just below the 200 day ma A rally in SMIDDs can usually be confirmed with strength in XBI, IBB, IWM and the laggard ARKG. So we could be in for a choppy tape until earnings come in April and we are lacking a life science theme like Precision Oncology or consistent M&A news.
The best SMID biotech trades in 2026 are: BBIO, CGOT, CYTK,DNTH, GH, EYPT,ILMN, PTGX, ROIV, XNCR but most of these stocks are 15-20 % off their January highs.
So there are good trades but sentiment is moving again to risk off.
