Wall Street warms to healthcare stocks as tech trade faces turbulence

By Shashwat Chauhan and Kanchana Chakravarty

August 5 (Reuters) - Investors are pouring wealth into U.S. healthcare stocks, betting that improving earnings, rising dealmaking and charismatic valuations volition widen the sector's rebound aft years of underperformance.

The renewed appetite for healthcare reflects a broader displacement successful capitalist positioning, with financials besides seeing gains, arsenic ‌Wall Street's rally expands beyond the fistful of AI-linked exertion companies that person dominated returns for overmuch of the year.

The S&P 500 healthcare scale has climbed 11.2% ‌in the past 3 months to deed a grounds high, outpacing the S&P 500's 6% rise. Around 50 U.S.-listed healthcare funds attracted $2.44 cardinal successful July, according to LSEG Lipper data, extending June's astir $1.5 cardinal inflow and reversing a ​three-month agelong of nett withdrawals.

"Healthcare offers a uncommon operation of durable growth, technology-like profitability, charismatic valuation and diversification benefits astatine a clip erstwhile galore investors stay heavy concentrated successful the AI theme," J.P. Morgan analysts led by Head of Global Markets Strategy Dubravko Lakos-Bujas said.

A Bank of America survey showed planetary money managers were nett 32% "overweight" connected healthcare stocks successful July, up sharply from 14% successful June.

EARNINGS GROWTH, M&A HEATS UP

The surge successful healthcare follows a agelong arsenic 1 of the S&P 500's weakest performers successful the archetypal 5 months of the year, with investors present looking up ‌to a crisp betterment successful profitability.

Earnings for S&P 500 healthcare companies ⁠are expected to turn successful treble digits from the 4th fourth of 2026 done the extremity of 2027, according to Tajinder Dhillon, caput of net and equity probe astatine LSEG.

That would reverse a 16.7% net contraction seen successful the 2nd 4th of 2026.

"Sentiment astir the healthcare assemblage had ⁠become overly negative, and caller net results and absorption commentary person helped alleviate immoderate of these concerns," said James Harlow, manager of probe astatine Novare Capital Management.

Drugmaker AbbVie topped second-quarter nett estimates successful its astir caller net and wellness insurer UnitedHealth Group bushed nett expectations and raised its 2026 forecast.

A surge successful dealmaking has besides added to the sector's appeal, analysts said. M&A worth successful the assemblage has ​reached ​nearly $284 cardinal this year, according to Dealogic, approaching 2025's full of $306 cardinal and topping each different twelvemonth since ​2021.

A media study earlier this week suggested AstraZeneca and Bristol-Myers Squibb ‌held talks astir a imaginable merger, which could make 1 of the world's biggest pharmaceutical companies with a combined worth of astir $400 billion.