By Josh Nathan-Kazis

The healthcare sector is tearing in two amid the stock market's tariff-induced turmoil.

Investors looking for safety from recession worries typically flock to the health sector, where demand has little to do with market conditions. The S&P 500 Health Care sector index fared far better than the broader market during both of the last two U.S. recessions.

That's why the Health Care Select Sector SPDR exchange-traded fund performed relatively well through most of the trading day last Thursday, just after President Donald Trump announced his latest tariff plan on global trading partners.

Since then, though, the picture has gotten far more complicated. Today, it's increasingly clear that broad bets on healthcare don't make sense as a refuge from the market chaos.

Things turned sour late Tuesday, in a speech at a Republican party dinner, when Trump announced that additional sector-specific tariffs were coming for the drug industry.

"We're gonna tariff our pharmaceuticals, and once we do that they're going to come rushing back into our country, because we're the big market," Trump said. "So we're going to be announcing very shortly a major tariff on pharmaceuticals, and when they hear that, they will leave China."

The vow to tariff drugs -- which were exempt from the tariffs Trump announced last week -- sparked a steep selloff in big pharma stocks on Wednesday morning. Bristol Myers Squibb stock fell 4.6%; AbbVie was down 4.2%; Eli Lilly fell 3.4%; Merck was down 2.3%; and Johnson & Johnson dropped 2%. Pfizer, which fell 3.5% on Tuesday on concerns about an coming earnings report, extended losses by another 3.1% Wednesday.

"SELL PHARMA STOCKS," Mizuho healthcare equities strategist Jared Holz wrote on Wednesday morning, saying he'd been making the case for weeks.

What pharmaceutical tariffs would actually look like, and how they would affect the big drugmakers, is hard to say. Trump referred to China in his comments, but it's largely generic drugs -- and not branded medicines -- that are made in Chinese factories. The American depositary receipt of the generic drugmaker Teva Pharmaceutical Industries was down 4% on Wednesday.

For the branded drugmakers, the cost of making their medicines is generally just a fraction of their U.S. prices, and it's far from clear how big an impact tariffs would actually have on prices or profits. Trump's Tuesday night comments, however, emphasize the peril the industry faces from an unfriendly administration, amid growing talk about new efforts to cut drug prices.

As pharma stocks suffered their Wednesday wipeouts, meanwhile, managed care stocks kept building on huge Tuesday wins. Their gains came after the Trump administration announced higher federal payments for Medicare Advantage plans, which amount to a $25 billion rescue for those businesses.

The rescue dramatically improved the outlook for managed care stocks, and Tuesday ended with Humana, UnitedHealth Group, and CVS Health as the top three performers in the S&P 500. Humana led the group with a 10.7% gain on the day.

Those stocks were still mostly still climbing on Wednesday, with UnitedHealth up 2.4% and CVS up 0.4%. Humana was down 1.8%.

Taken together, that separation between the managed care names and the pharma stocks has eliminated a broad healthcare sector bet as a haven from the tariff roller coaster.

On Wednesday, the Health Care Select Sector SPDR Fund was down 1.6% while the S&P 500 was up 0.4%. The S&P 500 Managed Health Care industry group was up 0.5%.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 09, 2025 12:04 ET (16:04 GMT)

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