Healthcare Stocks Face Uncertain Outlook Amid Congressional Shift, Says Mizuho Expert

Healthcare stocks may struggle to gain sustained momentum in the near term as political shifts in Washington set the stage for a divided government and potential legislative gridlock, according to market experts.

Following recent midterm election outcomes, the path forward for the broader healthcare sector has become increasingly murky. Jared Holz, a healthcare sector specialist at Mizuho, pointed out that the likelihood of a gridlocked Congress means sweeping legislative changes are improbable over the next couple of years, creating a challenging environment for investors seeking clear catalysts.

Appearing on CNBC’s "Fast Money" on Wednesday, Holz discussed the complex landscape facing medical, pharmaceutical, and biotechnology equities. "The next couple of years I really can’t see too much happening," Holz told CNBC. "I’m not sure you want to own everything, but you can pick and choose the names. Pharma is trading more expensive than tech for the first time in 20 years. So, I backed away from pharma. I would look at medtech."

The cautious sentiment underscores a shifting paradigm for healthcare equities, which experienced unusual market behavior immediately following the midterm elections. The State Street Health Care Select ETF (XLV) jumped 3% just a day after Election Day, catching some market participants by surprise given the complex crosscurrents impacting individual subsectors.

"You had this very weird situation where typically you wouldn’t have all of these categories work in tandem, and they did. So, I think some things just a little bit off," Holz noted. His comments came just a day before the broader healthcare sector became swept up in a wider Wall Street sell-off, highlighting the heightened volatility currently characterizing the financial markets.

Looking further ahead, Holz suggested that the sector’s true booster shot may not arrive until the next presidential cycle, pointing specifically to the 2028 presidential election as a potential turning point for healthcare performance. "Then I think you see some of the Trump strategies rolled back. That’s where I think healthcare could actually perform well," Holz said, adding that such a rally would heavily hinge on Democrats retaining control of both the Senate and the House of Representatives.

For institutional and retail investors maintaining long positions in healthcare, Holz emphasized the importance of a selective, subsector-specific approach rather than broad, indiscriminate buying. Navigating the current regulatory and valuation environment requires a granular understanding of the pressures facing different corners of the industry, from large-cap pharmaceuticals to medical device manufacturers.

When evaluating whether recent regulatory hurdles might ease, Holz expressed skepticism regarding short-term relief. "Can we get some of the regulation that has taken place over the past couple of years and overturn that over the near term? I don’t necessarily believe so," Holz said. However, he noted that if sentiment or regulatory conditions were to unexpectedly shift, certain segments could offer compelling value. "If you do, then you probably want to be long some of these medical device stocks that are at or near multi-year lows."

Despite near-term uncertainties and the prospect of legislative gridlock in Washington, the healthcare sector maintains a relatively solid longer-term footing relative to broader market benchmarks. The State Street Health Care Select ETF ended the recent week virtually flat, reflecting the tug-of-war between shifting political expectations and broader macroeconomic pressures.

Over a longer horizon, the sector has demonstrated notable resilience. The State Street Health Care Select ETF has climbed approximately 32% since President Trump took office in January 2025, outperforming the benchmark S&P 500 index by almost 9 percentage points over the same timeframe. As investors weigh the implications of a new congressional makeup and the prospects for legislative gridlock, market participants will likely continue parsing subsector fundamentals and valuations carefully in search of outperformance.