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America loves a comeback story. And as the tech trade falters in 2025 — with Magnificent Seven stocks in the red — Wall Street is on the hunt for pockets of strength.
While healthcare was barely positive in 2024, the sector is having its best start to a year since 2013 and is tied for second place among large-cap sector returns this year, up 6%.
"I think the best hedge on tech is healthcare," said DataTrek co-founder Nicholas Colas on a recent episode of chof360 Finance's Stocks in Translation podcast.
"Tech and healthcare tech have really stolen the ball the past couple of years," he said. "[But] healthcare got crushed last year on a whole range of issues — policy as well as fundamentals."
Todd Sohn, ETF strategist at Strategas Asset Management, also weighed in on healthcare in a separate episode of Stocks in Translation. He cites its poor returns compared to those of the US benchmark, the S&P 500 (^GSPC).
“Healthcare’s performance over the last five years is in the bottom decile relative to the S&P [500],” Sohn said, adding, “It's horrendous.”
Healthcare's meager 1% return in 2024 contrasts starkly with tech's robust 20% gain. Sohn highlights that since the October 2023 market bottom, healthcare has shed over $10 billion in ETF assets. Meanwhile, tech raked in over $30 billion.
"There've been massive amounts of outflows from healthcare ETFs, which tells me investors have left the space. They've deserted it," said Sohn. "And so from a sentiment and contrarian perspective, I like that idea — especially if tech starts to falter here a little bit more too," he said in a nod to healthcare's attractiveness as a tech hedge.
Like Colas, Sohn likes the growth aspects of healthcare, which dovetail with the sector's traditional value characteristics.
If healthcare's rebound has legs, investors have multiple ways to participate, including biotech, medical equipment makers, and insurers. And one major headwind — GLP-1 weight-loss drugs like Ozempic — may be fading as a sector risk factor.
Healthcare equipment companies took deep hits on the initial GLP-1 rollouts as investors priced in fewer weight-related surgeries and treatments. “Those names were just totally beaten down,” said Sohn.
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