The S&P 500 Health Care sector might have started 2018 looking sickly, but it’s entering the homestretch as one of the top-performing sectors year to date.

Threats by the Trump administration to force drug price cuts have yet to materialize. Instead, a robust market for mergers and acquisitions along with IPOs have helped lift stock prices.

Here’s the year-to-date (ytd) performance derby for the S&P 500 sectors through Tuesday’s close: Consumer Discretionary (18.3%), Information Technology (17.8), Health Care (11.3), S&P 500 (8.0), Industrials (2.3), Utilities (2.1), Real Estate (1.5), Energy (1.2), Financials (1.0), Materials (-2.2), Consumer Staples (-5.2), and Telecom Services (-5.7) (Fig. 1).

Driving the Health Care sector’s robust ytd performance are the following industries: S&P 500 Health Care Equipment stock price index (20.6%), Managed Health Care (16.6), Health Care Services (11.7), and Pharmaceuticals (8.7). Lagging behind is Biotechnology, up only 1.1% ytd (Fig. 2).

(1) Small but mighty. Even more impressive is the performance of small- and mid-cap Health Care stocks. The S&P 400 Health Care stock price index has risen 31.7% ytd, and the S&P 600 Health Care stock price index has soared 45.2% (Fig. 3). That makes Health Care the best performing of the 11 sectors in S&P’s small- and mid-cap indexes.

The industries driving the ytd performance of the S&P 400 and S&P 600 Health Care indexes include Managed Health Care (64.3%, 43.9%), Services (47.7, 23.4), Facilities (39.1, 18.2), Equipment (36.3, 48.1), Life Sciences (30.0, 41.8), Supplies (26.0, 40.4), Biotechnology (25.4, 39.8), Technology (14.8, 63.1), and Pharmaceuticals (-6.7, 43.0) (Fig. 4 and Fig. 5).

(2) Deals galore. Mergers and acquisitions have likely helped the performance of health care stocks. There have been $381.0 billion deals done in the global health care sector ytd, up from $240.1 billion over the same period in 2017, according to Dealogic data on wsj.com. That makes Health Care the second most active sector for M&A this year, trailing only the Tech sector.

Health Care companies also top the listing of the largest global M&A deals done ytd. Takeda Pharmaceutical announced in April plans to acquire Shire for $81.5 billion, making it the largest acquisition announced in 2018. Right behind it is Cigna’s pending acquisition of Express Scripts for $69.8 billion.

In addition, the IPO market has welcomed offerings from the Health Care sector. The sector has raised $15.0 billion in the global IPO markets this year compared to $10.7 billion raised at the same point in 2017. It’s the fourth most active S&P sector in IPOs this year, behind Tech, Finance, and Telecom.

(3) Digging down. Analysts are expecting the strong financial results from the S&P 500 Health Care sector to continue into next year. Revenue is forecast to climb by 6.1% this year and 5.2% in 2019, and earnings are forecast to improve by 14.6% and 8.1%, respectively (Fig. 6 and Fig. 7). The sector’s forward P/E, at 16.1, doesn’t appear stretched looking at its history over the past 25 years (Fig. 8).

As we mentioned above, the S&P 500 Health Care Equipment stock price index has been the best-performing industry within the sector. It’s expected to produce 12.5% earnings growth this year and 10.3% growth in 2019 (Fig. 9). However, its strength is no secret. The industry has a forward P/E of 22.5 (Fig. 10).

Three of the Health Care Equipment industry’s top-performing stocks are Idexx, Intuitive Surgical, and Boston Scientific. They each play into three strong trends driving the sector: pets, robots, and M&A. Idexx provides testing and other services to veterinarians and research facilities, among other things. Its stock has rallied 55.0% ytd, making it the industry’s top performer. Not far behind with a 49.7% ytd return is Intuitive Surgical, which makes the da Vinci robotic surgery platform. And Boston Scientific has rallied 45.8% ytd, after announcing a number of smaller acquisitions to bolster its growth.

Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.