While the S&P 500 index has slid 2.7 percent so far this year, the S&P 500 Healthcare Index has dipped only 0.5 percent. That might not sound like a big gap, but on an annualized basis, it's huge.
Healthcare is a classic defensive sector in the stock market. People need healthcare services in good times and bad. The healthcare index has outperformed the overall S&P 500 in the past year — 25.6 percent to 11.9 percent in total return.
"When people are uncertain about the market and how much higher we're going to go, having positions in healthcare helps to be defensive," Eddie Yoon, a manager of the $8.6 billion Fidelity Select Health Care Portfolio fund, told
The Wall Street Journal.
Blue-chip medical companies, such as drugmakers, provide generous dividends and relative share-price stability. At the same time, biotechnology companies can see massive gains in their share price if their drugs work out.
To be sure, a correction may be in order for the healthcare sector. "With valuations so rich it could take a breather," Reed Choate, portfolio manager at Neville, Rodie & Shaw, told The Journal.
The Motley Fool's Tom Campbell, owner of E.B. Capital Markets lists five top healthcare stocks to buy this year:
- Insurer UnitedHealth Group (UNH),
- Hospital owner Community Health Systems (CYH),
- Healthcare software company Cerner (NASDAQ),
- Biotech company Celgene (CELG) and
- Medical device company Align Technology (ALGN).
As for UnitedHealth, thanks to Obamacare, "membership growth should provide significant tailwinds next [this] year," Campbell wrote.
Meanwhile, "Community Health has become one of the nation's top hospital operators, and that positions it perfectly to benefit from rising insurance enrollment," he said.
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