Over the past week, the healthcare sector emerged as the best-performing area in the U.S. stock market. The State Street Health Care Select Sector SPDR ETF (XLV), which tracks the healthcare sector of the S&P 500 Index, rose 3.3% over the last five trading days, while the S&P 500 Index itself gained less than 0.5 percentage points during the same period. This marks the sector’s best weekly performance in nearly six months.
As a foundational tool for investing in the entire healthcare sector, XLV tracks the Health Care Select Sector Index, covering multiple industries including pharmaceuticals, medical devices, and healthcare service providers. The fund maintains a relatively balanced allocation across sub-sectors, with pharmaceuticals accounting for 37%, devices for 20%, biotechnology for 18%, and healthcare service providers for 16%.
Several pharmaceutical companies have recently reported positive developments. Pharmaceutical giant Merck (MRK) saw its stock price surge this week after announcing that a lung cancer drug developed in partnership with a Chinese collaborator reduced the risk of tumor progression by 65% in a Phase III clinical trial.
Eli Lilly (LLY) has also performed strongly, with its stock price accumulating a 25% gain over the past three weeks. The U.S. Centers for Medicare & Medicaid Services recently announced that, starting in January 2027, it will provide Eli Lilly’s GLP-1 drugs Zepbound and Mounjaro to Medicare patients at a monthly cost of $50.
UnitedHealth Group (UNH), the largest health insurance company in the United States, has rebounded more than 17% so far this year. The company’s first-quarter revenue and earnings both exceeded Wall Street expectations, and it raised its full-year profit guidance. UnitedHealth is also actively using artificial intelligence tools to improve operational efficiency and profitability.
More notably, the Trump administration announced in April that the 2027 Medicare Advantage payment rate would increase by 2.48%, or approximately $13 billion, significantly higher than the government’s initial estimate of 0.09%. As the largest service provider in this space, UnitedHealth stands to benefit considerably.
Market observers point out that investors are rotating from high-valued technology stocks into healthcare stocks, which generally have lower price-to-earnings ratios. At the same time, high inflation and geopolitical uncertainties are driving some capital to seek refuge in defensive sectors. Like other defensive sectors, healthcare tends to perform more steadily during economic fluctuations.
From a demographic perspective, the global trend of population aging is driving increased demand for pharmaceuticals, medical devices, services, and health insurance. This long-term positive factor provides a solid foundation for the entire healthcare sector.
Of course, competition within the healthcare industry is also intense; for example, multiple companies are developing new GLP-1 drugs to challenge Eli Lilly’s market position. Therefore, investing through ETFs has become an option for diversifying risk. XLV holds more than 60 stocks, with its top holdings including Eli Lilly (15.4% weighting), Johnson & Johnson (JNJ) (10.4%), AbbVie (ABBV) (approximately 7%), and UnitedHealth Group (approximately 6.5%).
Summary: The healthcare sector has recently shown strong performance, driven primarily by innovation breakthroughs from pharmaceutical companies, policy tailwinds, capital rotation, and long-term trends such as population aging. As an ETF covering the entire industry, XLV provides investors with a tool for diversified exposure to the sector. Given continued innovation and steady demand growth, the healthcare sector deserves long-term attention.
