There are 11 sectors in the S&P 500, ranging from financials and industrials to utilities, real estate, and energy.
One area we’ve barely talked about over the past few years is health care.
Outside of biotechnology and a handful of large-cap trades, it’s been easy to ignore. It hasn’t been flashy. It hasn’t been leading.
And compared to what technology and other growth areas have delivered, it’s felt irrelevant. That’s a mistake. This is not Canada, where health care barely even exists in the equity market.
This is the United States, where health care companies are deeply embedded in the economy and the stock market.
Health care is the fifth-largest sector in the S&P 500, accounting for roughly 10% of the index. It also represents about 12% of the Dow Jones Industrial Average.
Even in the Nasdaq 100, where technology dominates, health care still shows up, albeit at a smaller weight, near 4%. But look one layer below.
In the Nasdaq Next 100, represented by Invesco Nasdaq Next Gen 100 ETF (QQQJ), health care is the second-largest weighting, making up roughly 20% of the index.
Health care matters in this market. And yet, for most of this bull cycle, it’s been a persistent underperformer. That disconnect is what makes the current setup so interesting.
Because while health care has lagged for years, the broader market has entered a phase where leadership is expanding, participation is broadening, and former laggards are starting to get their turn.
I think health care may be next.
Large-Cap Health Care New All-Time High
On Friday, the Health Care Select Sector SPDR ETF (XLV) closed the week at the highest level in its history.
This is not something to dismiss:
What makes this move even more interesting is the context.
Despite printing new all-time highs, health care hasn’t meaningfully exceeded its prior peak from the summer of 2024.
In other words, this breakout is happening after a long period of frustration and consolidation, not after an extended run.
And it’s happening at a time when leadership across the market is broadening.
We’re seeing more stocks hit new 52-week highs than at any point in more than a year. The advance-decline for the New York Stock Exchange just closed at a new all-time high.
The S&P 500 Equal Weight Index is at all-time highs. The S&P MidCap 400 is at all-time highs.
Even the median stock, captured by the Value Line Geometric Index, broke out to new multi-year highs last week.
This is not a market where only a handful of names are working.
Participation is expanding. More groups are getting their turn.
And, after years of underperformance, I think health care is setting up to be one of the bigger winners as that rotation continues.
Still a Relative Laggard
This bull market began in the middle of 2022, when most stocks put in their lows, and it really gathered momentum as 2023 got underway.
Since then, health care has gone straight down on a relative basis.
Compare health care to the S&P 500, and you’ll notice the trend has been persistently lower the entire time.
While the S&P 500 and other areas of the market have been ripping higher, health care has quietly lagged:
That relative weakness is not a reason to avoid the group. It’s the reason to pay attention.
One of the key themes I was watching coming into this year was dispersion – a wide gap between the strongest and weakest areas of the market, not everything moving together, clear winners and clear losers.
So far, that’s exactly what we’re seeing. And I think that continues through 2026.
For dispersion to persist, leadership has to rotate. Former laggards become new leaders, while yesterday’s winners take a breather.
Health care is perfectly positioned for that role.
And remember, health care is not a single trade. It’s a collection of different industry groups. Biotechnology has already been working.
There’s also medical equipment and devices, health care services, pharmaceuticals, and more.
If dispersion is the dominant theme, I’d expect it to show up inside the health care sector as well, not just across the broader market.
That’s why you should expect to see more health care stocks appearing in our Divergence and Primary Trend portfolios.
You’ve already seen a few.
But we’re just getting started.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs