Healthcare stocks are in their "biggest crash in the last 20 years," says analyst

The S&P 500 keeps hitting new highs, but healthcare stocks are stuck in reverse.

The Health Care Select Sector SPDR Fund (XLV), which tracks the S&P 500’s health care sector, has dropped roughly 17% since peaking around $159 late last year.

It’s now hovering near $131, and that’s just the top-line number. Zooming out, the underperformance is even more brutal.

According to contrarian investor Oguz Erkan, dividing XLV by the S&P 500’s total return shows healthcare is enduring “its biggest crash in the last 20 years,” with the ratio falling 41% over the past few years to an all-time low.

Meanwhile, the S&P 500 just blew past 6,300 for the first time, up more than 8% this year.

According to recent Bank of America data, healthcare funds just posted their biggest weekly outflow in over five years, with more than $2 billion gone.

And while many analysts have focused on the meltdown at UnitedHealth (UNH) as a key driver, the sector’s problems go far beyond one company. Rising costs, declining enrollment in government programs, and looming drug price cuts are all putting pressure on earnings.

Trump’s drug pricing blitz

Shortly after taking office, President Trump signed an executive order aimed at slashing drug prices. The plan is to enforce “most-favored-nation pricing” to cut out intermediaries and align U.S. costs with international rates.

Analysts have also flagged the risk of federal cuts to healthcare R&D, which could squeeze future pipelines.

“A lack of R&D probably makes it a lot harder for investors to get excited,” said Karen Andersen, director of healthcare equity research at Morningstar.

As a result, Morningstar noted that “healthcare stocks got left behind in the market rally,” ranking among the worst-performing sectors since April — trailing only energy and consumer cyclicals.

The silver lining for contrarians is that both Andersen and Erkan believe valuations are now too low to ignore. “For those with the stomach for short-term turbulence,” said Erkan, “the opportunity is immense.”