Healthcare and Biotech Sector Update-2025 YTD: Are Healthcare Stocks really Defensive during Macro Turmoil? Update-1

Update-1 MARCH 25 : A day of choppy trading with the NASDAQ up 0.46% and the Russell weak down 0.66% but large cap biopharmas were weak:ABBV down 3.74% to the $201 level, AMGN down 2.39% to the $306.84, BMY down 3.05% to $59 level,MRK down 4.81% to $78.87, PFE down 2.26% to $25.55 and REGN down 4.06% to $634 .In the green were GILD and RHHBY.We may have to wait for action tomorrow to se what’s behind the sell-off But you should trim a tad to raise cash. GILD and RHHBY were in the green. Review last set of metrics. We’ll see commentary tomorrow and analysis could show downgrades, from tariffs or currency issues such as a weak dollar.

• The XLV was down 1.28% and the IHI was flattish.
• LLY and JNJ were down less than 2%.
• With Trump 2.0 Medicare negotiation and cuts may be back in the hot seat.

Healthcare and Biotech Outperformed the Market During the Recent Sell-off

• The XLV was up 6.56% in 2025 YTD beating the major stock indices. Two major life sciences funds also outperformed the market: FBIOX and JNGLX.
• Large caps outperformed small caps among biotechs and the general market because of stable growth and dividends.
• SMID caps are still good for trading during rally days like today.

Tech stocks sold off from the Feb.14 peak as the Trump tariffs rattled investors. Megacap tech (MAGS) was hit the hardest because many the AI and chip stocks soared in 2024 and analysts are questioning the returns on the massive investment. The Magnificent 7 ETF (MAGS) was up to peak $58 levels in late December  before falling 14% to the $47 level on Friday. Similarly the QQQ was down about 10% over the past month because of MACRO concerns before a slight comeback last week triggered by a comment from TRUMP that the Administration would be “flexible” on tariff actions. Today you are getting  another rally because of a perception that tariffs will be more targeted so don’t fight the tape. But we will see what happens on April 2 when the “reciprocal ” round of tariffs is announced.

As a result  of the “uncertainty” in the MACRO investors have bought healthcare and large cap biopharmaceutical stocks because of more reasonable valuations and out of the tariff flak. Given the aging demographics of consumers the domestic demand for medical services looks more predictable .For Q1 2025 this proved to be the correct call the XLV was-over 6% compared to a decline in major indices and sell-off in tech stocks. Energy and  financial stocks are also strong YTD.

Of course this analysis might be fair and balanced during “normal’ times but with the Administration’s policy changes in the midst of geopolitical turmoil you have to be prepared for the potential of whiplash. But we expect that the healthcare sector should be insulated somewhat. We can start by assessing the marigin impact in vulnerable areas like MEDTech. And we still have ionger term issues from cuts in NIH funding a major engine for innovation in medical science.

Takeaways from Market Data

1. Large cap biopharma stocks continue lead market up with best up over 10% YTD: VRTX, AMGN, ABBV, AZN, GILD. New buys to consider are  BMY, PFE.
2. Underperformance among these large cap stocks is greater than expected: MRK, PFE, REGN.
3. UNH has been the largest holding and best performer in the sector but lagged in 2024/25 up only 5.12% over 12 mos.
4. Gilead Sciences (GILD has been one of the best performers but recently has been hit by a potential change in Government policy that will reduce financial support of HIV products.
5. US Medical Devices sector took a significant hit from the recent market sell-off with the IHI down 8.07 % in one month. Was it caused by supply chain issues?
6. JNJ is up 13% YTD a huge move for a lagging stock and should be a safer play with a strong biopharma and Medtech product portfolios.
7. SMID Life Science stocks were tough trades during the recent sell-off as you can see from the ARKG off 1.64% and the XBI down 3.25%. Note that the small  cap sector is lagging with the IWM down 7.65% YTD.
8. Stocks to watch on upcoming earnings for Q1: ABT, JNJ, UNH.
9. Tech stocks underperformed with the XLK down 8% YTD and the MAGS down 14.28% YTD and 13.97% over recent 4 weeks. But they are rallying today.
10. SMID cap momentum in biotech has faded but there are pockets of strength .

Healthcare Sector Update