Healthcare stocks have had a very impressive run recently, growing by 13% in the past 3 months while the S&P 500 grew by about 2.5% in the same period. The industry is usually seen as a value investment, but recent news has grabbed investor attention to multiple sectors that they believe have potential for growth.
During the past year, investors have rallied around pharmaceuticals as they release new lines of medicines that have seen extremely high levels of demand. Eli Lilly, for example, continued to see incredible growth in the sales of their GLP-1 drugs, making it the first trillion-dollar pharmaceutical company in late 2025. New immunotherapies for the treatment of cancer are also gaining FDA approval and companies like Merck are seeing massive sales as a result.
That success has a spillover effect on the rest of the sector, as companies now have the cash on hand to invest in joint projects to develop new products. An example of this came last week, when Merck and Moderna announced that they were combining their proprietary technologies to develop a vaccine that prevents the return of melanoma and other cancers. Shares of both companies jumped significantly as investors rallied around hopes that a deliverable product would be coming soon.
Besides just combining existing technology, some pharmaceuticals are taking the opportunity to expand their product line by licensing or buying outright from smaller biotechnology companies. While these companies lack the same revenue as the larger drug makers, their ability to get a new product to the market makes them valuable to pharmaceutical companies looking to stay competitive. An example of this came in June, when Apogee Therapeutics was bought by Abbvie to expand their portfolio of cancer-treating immunotherapies.
The news of corporate activity has likely been the reason why investors began rotating into the healthcare industry, pushing XLV up to its resistance level where it is today. Looking at the RSI and the MACD, it is difficult to determine whether the bullish momentum can be sustained. The price does not usually stay above its 20-day moving average for very long and it might come back down, potentially reverting to the mean.
Ultimately, corporate activity has the potential to fuel growth across the industry, especially for the largest pharmaceuticals. These established companies have price movements that can be trended, allowing investors to capitalize on the broader momentum of the industry.
This material is for informational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results.
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