Healthcare stocks are trailing the broader market by margins not seen since 2008, as tumbling pharma giants and a stampede toward tech and AI names have left the sector deeply out of interest.
The Healthcare Select Sector SPDR Fund (NYSE:XLV) now trades at just 0.2234 shares of the S&P 500 ETF Trust (NYSE:SPY), its weakest relative value in more than a decade. In 2015, that ratio was 0.35, making today’s level a 40% drop in comparative value.
In May 2025, healthcare lagged the S&P 500 by 11.2%, the worst single-month relative performance since records began. Versus the red-hot tech sector, the gap is even more extreme — at levels last seen in February 2000.
Have we been here before? Yes, and history suggests this kind of extreme undervaluation often triggers powerful reversals.
The Last Time Healthcare Was This Unloved Was In 2008…
Chart: TradingView
…When A Monster Rally Followed
After similar dislocations in May 2008 and October/November 2001, healthcare stocks sharply outpaced the broader market.
From November 2001 to September 2002, the sector outperformed the S&P 500 by 41%. From June 2008 to February 2009, it beat the market by a similar 40%.
When compared to tech stocks, the comeback is even more dramatic.
Between March 2000 and September 2002, healthcare outperformed the Invesco QQQ Trust (NASDAQ:QQQ) by a staggering 390% as the dot-com bubble burst.
These episodes followed the same pattern: investors often chased growth stocks until valuations became extreme.
Healthcare, seen as a comparatively safer sector, then spiked as capital rotated back to battered value and defensive names.
What's Triggering The Current Healthcare Slump?
Big pharma and healthcare insurers are dragging the whole sector lower. UnitedHealth Group Inc. (NYSE:UNH) is down 40% year to date, its second-worst year since 1987.
Eli Lilly and Co. (NYSE:LLY) fell 18% in May, its steepest monthly drop since February 2009.
Meanwhile, Merck & Co. Inc. (NYSE:MRK) has logged nine straight months of declines — a feat unmatched since the company went public in 1970.
Are Healthcare Stocks A Buy Right Now?
Wall Street analysts are optimistic that the sector might soon head towards a turnaround.
Of the 60 companies in the Healthcare Select Sector SPDR Fund, 59 have average 12-month analyst price targets above current market prices. The sector's weighted average upside stands at 17%.
For key players in the sector, Eli Lilly has a median analyst target that’s 22% above its current share price. UnitedHealth Group is expected to rise by 18%, while Merck & Co. is forecasted 27% higher the next 12 months.
More traditional valuation metrics also support the bullish case. The sector trades at a forward price-to-earnings ratio of 21, well below the 30 for the S&P 500 — highlighting just how steep the current discount is.
Read now:
Photo: Shutterstock