Health care stocks have lagged behind the broader market in 2025, facing challenges from policy uncertainty and company-specific issues. Despite being traditionally seen as a stable sector, this year has been different. However, historical performance and long-term trends suggest opportunities remain.
Political and regulatory uncertainty under the Trump administration has been a significant obstacle, particularly for pharmaceutical companies. The managed care sub-industry has faced difficulties, with UnitedHealth Group experiencing leadership changes and investigations.
By June's end, health care was the second-worst-performing sector with a return of -1.11%. The life sciences tools and services industry also struggled due to ongoing issues in Chinese markets affecting companies like Thermo Fisher and Danaher.
Despite these short-term challenges, health care's long-term performance is strong. Since September 1989 through June 2025, the S&P 500 Health Care Index achieved an annualized return of 11.26%, surpassing the S&P 500 Index's 10.62% return.
Long-term growth drivers include demographic shifts and innovation. Baby boomers retiring are increasing demand for medical services, while advances in GLP-1 drugs for diabetes and obesity are opening new markets. Robotic-assisted surgery and AI advancements are expected to improve patient outcomes.
The investment approach focuses on innovative companies with strong franchises across the health care system while maintaining valuation discipline and risk-awareness.
Despite recent headwinds, health care has shown strong historical performance with potential benefits from trends like AI and aging demographics.
"Novo Nordisk," "First Quarter 2025 investor presentation."
"IQVIA," "Outlook for obesity in 2025: more than a transition year," by Markus Gores, VP, EMEA Thought Leadership and Sarah Rickwood, VP, EMEA Thought Leadership. January 7, 2025."
Jason Kritzer is a Managing Director along with Samantha Pandolfi at Morgan Stanley Investment Management.
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