The S&P 500 Healthcare Index (XLV) just closed at the highest level in its history.
That got my attention. Healthcare hasn’t exactly been everybody’s favorite place to invest.
For years it’s been one of the market’s biggest laggards while investors piled into technology, AI, semiconductors, and anything else with a growth story attached to it.
But markets have a funny way of changing the conversation before the headlines do.
The last time healthcare looked like this was about 25 years ago.
It had spent years frustrating investors. Then it broke out and quietly became one of the market’s biggest winners.
Could that be happening again?
One thing I’ve learned over the years is that when price starts telling me something new, I want to know why.
I think I found another clue.
The FDA Just Became an AI User
Everybody wants to talk about AI replacing doctors.
Meanwhile, almost nobody is talking about the FDA.
Earlier this year, the FDA introduced its own artificial intelligence tool.
The regulator says ELSA helps employees read long reports, summarize information, compare drug labels, and handle other repetitive work that normally takes a lot of time.
The FDA has also been very clear about what ELSA does not do. It doesn’t approve drugs. It doesn’t replace scientists or doctors. It doesn’t make the final decision. It simply helps the people making those decisions work more efficiently.
That’s exactly how it should be.
Now, think about what that means.
One of the biggest problems in healthcare has always been how long everything takes.
Drug companies can spend years, and sometimes billions of dollars, developing a new treatment before it ever reaches patients.
Then the FDA has to review mountains of data before deciding whether it’s safe and effective.
If AI can help reviewers spend less time reading paperwork and more time focusing on the science, that’s a big deal.
I’m not saying every new drug is suddenly going to get approved overnight. I’m saying the referee just got instant replay.
The rules didn’t change.
The referee just got a better way to make the right call, faster.
The Market Already Seems To Get It
Here’s what I find fascinating.
Everybody is looking for the next AI company.
The market may already be telling us that one of the biggest AI stories isn’t a technology company at all.
It’s healthcare.
It’s not because hospitals are replacing doctors with robots, or that AI is inventing miracle drugs overnight.
It’s because one of the biggest friction points in the entire industry is finally getting better.
We’ve been talking for months about how healthcare has been quietly getting stronger beneath the surface.
Biotech has been making new five-year highs. Healthcare services have been breaking out.
And short interest remains elevated across many of these stocks, telling us plenty of investors still don’t believe the move.
That’s usually how bull markets begin.
Take a look at large-cap healthcare relative to the S&P 500:
It’s sitting at the exact same level where healthcare began its last secular period of outperformance 25 years ago.
We’re putting our money where our mouth is. Healthcare names are already in our portfolios because the weight of the evidence keeps improving.
Everybody wants the next AI stock. I’m more interested in the industries AI is making better.
If the FDA becomes more productive, that’s good for patients. It’s good for innovation.
And I think it’s going to be good for healthcare investors too.
Sometimes the biggest opportunities aren’t the companies building the technology.
They’re the industries quietly learning how to use it.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs