Healthcare stocks face an uncertain outlook as Democrats prepare to take control of Congress, with sector specialists warning that legislative gridlock could dampen performance over the coming years. Jared Holz, who covers healthcare for Mizuho, told CNBC's Fast Money programme on Wednesday that he expects limited legislative action in the near term. "The next couple of years I really can't see too much happening," Holz said. "I'm not sure you want to own everything, but you can pick and choose the names."
The State Street Health Care Select ETF, which tracks the sector, jumped 3% the day after Election Day but ended the week virtually flat. Since President Trump took office in January 2025, the fund has gained around 32%, outperforming the S&P 500 by almost 9 percentage points. Holz noted that healthcare's recent performance included an unusual alignment of subsectors moving in tandem, suggesting some dislocation in valuations. He added that Thursday's Wall Street sell-off swept up healthcare stocks alongside the broader market.
According to Holz, the outlook shifts significantly if a Democrat wins the White House in 2028. "Then I think you see some of the Trump strategies rolled back. That's where I think healthcare could actually perform well," he said, provided Democrats retain control of both the Senate and House. He cautioned, however, that regulatory changes implemented over recent years are unlikely to be overturned in the near term.
For investors deciding how to position themselves within healthcare, Holz recommended treating each subsector differently. He has stepped back from pharmaceutical stocks, noting they are trading at more expensive valuations than technology for the first time in two decades. Instead, he suggested looking at medical device companies, some of which are at or near multi-year lows, should regulation be rolled back in future.
For US investors and savers, healthcare stock performance will depend heavily on which party controls the White House after 2028, with near-term gridlock likely to limit sector momentum regardless of near-term market moves.