The rally in healthcare stocks has plenty of room to run.
The healthcare sector blasted higher on Friday. News that Berkshire Hathaway, Appaloosa Capital, and Scion Capital had taken large positions in UnitedHealth Group (UNH) sparked a rally across all the stocks in the sector.
After all, if the best “value” investors on the planet are buying UNH, then maybe the sector isn’t dead. Maybe the bottom is in. And, maybe the rest of us ought to think about buying healthcare.
Admittedly, up until last Friday, that was a silly idea. The Health Care Select Sector Fund (XLV) was the worst-performing fund of all the major sectors for 2025. Not only was XLV trading down for the year, it was also trading below its early April “Liberation Day” low.
While the S&P 500 had recovered everything it lost during the tariff-turmoil early this year and was hitting new all-time highs, healthcare stocks couldn’t get off the mat.
They were making new lows almost daily.
Look at this long-term ratio chart comparing the action in XLV to the action in the S&P 500…
When this chart is moving higher, it indicates the healthcare sector is outperforming the broad stock market. When the chart is declining, healthcare stocks are lagging the action.
As you can see, for the past two years the action in the healthcare sector has been abysmal. XLV is trading at its lowest relative value to the S&P 500 in over 10 years.
There’s no wonder value investors like Warren Buffett, David Tepper, and Michael Burry are buying into the sector. It will take a huge rally in the health care stocks just to get this ratio chart back inside its historical trading range.
Of course, Friday was a BIG day for the sector.
UNH rallied 12%. XLV gained almost 2%. Normally, I’d be reluctant to suggest traders chase the healthcare stocks higher after such large, one-day moves.
But, these stocks are so beaten down and so oversold that Friday’s action is just a small bump on their charts.
Take a look at UNH…
Even after Friday’s big rally, UNH is still trading well below where it started the year. In fact, it’s even trading below where Mr. Buffett purchased his shares.
So, like I said earlier, this sector still has plenty of room to run.
Best regards and good trading,
Jeff Clark
Editor, Market Minute
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