By Paul R. La Monica

So much for the healthcare sector being a place to hide during market turmoil? Healthcare stocks were volatile Thursday after insurer UnitedHealth reported earnings that missed Wall Street's targets and awful guidance.

The healthcare Select Sector SPDR exchange-traded fund initially plunged more than 1% Thursday, led by the 20% plunge in UnitedHealth's stock. The company is the second-largest weighting in the ETF.

But the ETF recovered as the session wore on and was flat in midday trading. Why? It looks like the damage to the sector could have been a lot worse if not for the fact that drugmaker Eli Lilly, which is the largest holding in the fund, surged 16% thanks to promising clinical trial results for a weight-loss pill.

It just goes to show that investors can't paint the sector with one brush. UnitedHealth's woes are clearly a concern, but probably more for rivals like CVS, Humana and Elevance Health, which all fell to varying degrees Thursday.

Meanwhile, many drugmakers rallied on the Eli Lilly news. The SPDR S&P Pharmaceuticals ETF and iShares U.S. Pharmaceuticals ETF were both higher. Lilly rival Novo Nordisk, the maker of GLP-1 injections Ozempic and Wegovy, tumbled 7% though. (Lilly makes competing medications Zepbound and Mounjaro.)

Healthcare stocks, like every other part of the market, will continue to have its fair share of winners and losers. And it's worth noting that despite the numerous worries about what will happen to government funding for healthcare now that Robert F. Kennedy Jr. is the head of the Health and Human Services department, not all healthcare stocks are going to get hit.

In addition to Lilly, Big Pharma company Johnson & Johnson is a winner in the Dow this year. The company reported solid earnings earlier this week. But at the other end of the spectrum, struggling Merck is down more than 20% this year due to weak earnings and concerns about what its next big drug will be after the patent on its blockbuster cancer medication Keytruda expires in a few years, making it one of the Dow's worst performers.

Wall Street remains fairly bullish on medical equipment and device makers, companies like Zimmer Biomet, Medtronic and Stryker. The rationale? An aging American population will continue to need hip and knee replacements, insulin monitors, stents and pacemakers. That's unlikely to change no matter what happens to the pharmaceutical and insurance sectors.

Many big healthcare stocks also pay large dividends, which is helping to boost them at a time when investors are nervous about volatile bond yield movements. With all that in mind, the sector is still holding up reasonably well this year, even as some major healthcare stocks are getting whipsawed. The healthcare Select Sector SPDR ETF is down just 1% this year.

And many of the stocks still look like good bargains. The ETF trades for just 17 times earnings estimates for this year, a slight discount to its five-year average and also a bigger than usual haircut to the S&P 500, which now trades at a multiple of 20.

Don't be surprised to see top healthcare stocks continue to get hit by political headlines as well as company-specific news about earnings. That doesn't mean that the whole sector is sick though.

Write to Paul R. La Monica at paul.lamonica@barrons.com

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April 17, 2025 14:24 ET (18:24 GMT)

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