The Zhitong Finance App learned that as investors' confidence in artificial intelligence (AI) related stocks is being impacted, Wall Street capital flows to the healthcare sector at an accelerated pace, seeking to avoid the risk of fluctuations in technology stocks. Since the end of April, the S&P 500 healthcare index has accumulated a cumulative increase of about 23% until the close of Monday, not only outperforming the S&P 500 index, but also surpassing all other sectors, including technology stocks that have performed well before, and energy stocks that have risen due to the war in Iran.
This round of health care stock gains was mainly driven by large pharmaceutical companies such as LLY.US (LLY.US), ABBV.US (ABBV.US), and Johnson & Johnson (JNJ.US). As market concerns about the return on AI investment, the huge capital expenses of technology companies, and related financing risks heat up, the healthcare sector is once again favored by investors.
Matt Orton, chief market strategist at Raymond James Investment Management, said that healthcare stocks are being viewed by the market as an “anti-AI transaction.” When investors are uneasy about AI spending prospects and related technology stocks are sold off, the healthcare sector often shows relatively strong resilience.
Capital flow data further confirms this trend. According to data compiled by Baird Strategas up to October 19, healthcare exchange-traded funds (ETFs) have attracted a cumulative inflow of about US$4 billion over the past 65 trading days, surpassing all other industry sectors. In contrast, technology ETFs experienced a net outflow of about US$6 billion during the same period, the most among all sectors.
Orton notes that until about six months ago, the performance of healthcare stocks clearly lagged behind the overall market, so their valuations are relatively more attractive. As investors begin to reduce portfolio risk, the healthcare sector is gradually becoming one of the main places for capital to seek safety.
The recent sharp swings in technology stocks have further accelerated this transformation. Previously, the stock price of cloud computing service provider CoreWeave (CRWV.US) dropped sharply due to debt-related indicators rising to levels commonly viewed as financial difficulties, causing the market to worry about AI infrastructure financing risks. Affected by this, technology stocks recorded their worst weekly performance since Trump introduced the tariff policy in April 2025.
Meanwhile, the healthcare sector continued its upward trend for many weeks. Brian Mulberry, chief market strategist at Zacks Investment Management, said that market fluctuations caused by CoreWeave prompted investors to actively reduce portfolio risk. He pointed out that uneasy funds due to AI-related risks are being redirected to the healthcare sector.
However, the rise in healthcare stocks did not depend entirely on safe-haven demand. Michael Arone of State Street Investment Management believes that the profit performance of healthcare companies and the market's expectations for an improvement in the 2027 industry outlook are also supporting the rise in the sector.
In his view, investors are not completely selling off technology stocks and buying healthcare stocks, but are readjusting their portfolios to reduce the previous excessive centralized allocation of AI-related assets.
Furthermore, the upcoming US midterm elections have also become an important factor affecting the flow of funds. As investors begin to assess possible changes in Washington's political landscape, market demand for industries that can withstand potential policy adjustments rises.
Morgan Stanley analyst Erin Wright pointed out that the healthcare sector is considered to be immune to regulatory policy noise to a certain extent, so it is relatively attractive in the current political environment.
However, as the US stock earnings season enters a critical phase, the continued upward trend in healthcare stocks is also facing a test. Earlier this month, the results announced by Johnson & Johnson failed to meet market expectations, dragging down the healthcare sector to record its worst performance in more than a month.
Subsequently, complete trial data for the personalized melanoma vaccine developed by Modena (MRNA.US) and MSD (MRK.US) were leaked, impacting the high expectations previously established by the market. Modena shares plummeted 18% last Thursday. Affected by related news, the S&P 500 Healthcare Index fell 1.1% on Friday, falling back from the historic closing high set in the previous trading day.
As industry leaders such as Eli Lilly are about to release financial reports, the market will further test whether the fundamentals of the healthcare sector can support recent gains.
According to Orton, we are currently in a critical period to determine the next trend of healthcare stocks. He said that if large healthcare companies can deliver results that meet or exceed expectations, there is still room for further growth in the sector. The reason is that in the past period, market capital was excessively concentrated on AI investment topics, making healthcare a relatively underallocated field.
Judging from the latest views of Wall Street agencies, the health care sector continues to grow in appeal.
Earlier this month, the Royal Bank of Canada Capital Market upgraded the healthcare sector to “overrated” while downgrading the technology sector to “on par with the market,” reflecting that its expectations for the relative performance of the two major sectors are changing.
Ohsung Kwon, chief stock strategist at Wells Fargo Bank, believes that in the future, the leading force in the US stock market may no longer mainly come from the semiconductor industry. He pointed out that semiconductors are currently one of the most weighted industries in the S&P 500 index, and as capital flows out of semiconductor stocks, investors will look for other areas that can benefit.
Kwon anticipates that a significant portion of capital may still go to other segments within the technology industry, but the healthcare sector will also become an important funding destination.
Overall, as the AI investment boom faces stricter valuation and profit tests, the US stock market is showing signs of rotating from overvalued tech stocks to other industries. With relatively attractive valuations, improved profit prospects, and strong defensive attributes, the healthcare sector is becoming an important choice for Wall Street to reallocate capital.
However, whether healthcare stocks can continue their strong performance over the past six months will still depend on the financial results of major pharmaceutical companies in the future and whether the market's risk appetite for AI-related assets declines further.