Healthcare stocks face an uncertain prognosis following midterm election results that will bring Democrats into control of Congress, according to analysis from Jared Holz, healthcare sector specialist at Mizuho [1]. Holz expressed concern that gridlock between lawmakers will limit significant policy changes in the near term, stating "The next couple of years I really can't see too much happening" [1]. Despite these headwinds, the State Street Health Care Select ETF (XLV) jumped 3% the day after Election Day, though this momentum was short-lived as healthcare stocks were swept up in a broader Wall Street sell-off on Thursday [1].
Holz recommended a selective approach to healthcare investing rather than broad sector exposure, noting that "Pharma is trading more expensive than tech for the first time in 20 years," prompting him to reduce pharma exposure in favor of medtech positions [1]. He suggested that medical device stocks trading at or near multi-year lows could present opportunities if recent regulations are overturned, though he expressed skepticism about near-term regulatory rollbacks [1]. The analyst identified a potential longer-term catalyst: a Democratic presidential victory in 2028 could lead to reversal of Trump-era healthcare strategies, which "is where I think healthcare could actually perform well," contingent on Democrats retaining control of both the Senate and House [1].
Year-to-date performance has been strong for the healthcare sector despite current uncertainty. The XLV ended virtually flat for the week but is up approximately 32% since President Trump took office in January 2025, outperforming the S&P 500 by nearly 9 percentage points [1]. This performance reflects the sector's gains during the Trump administration, though the shift in Congressional control introduces new variables for investors to navigate.
CONCLUSION
Healthcare stocks face near-term headwinds due to Congressional gridlock under Democratic control, prompting analysts to recommend selective positioning favoring medtech over pharma. While the sector has significantly outperformed the broader market since January 2025, meaningful policy catalysts may not emerge until a potential Democratic presidential victory in 2028, creating a period of uncertainty for healthcare investors.