Top of the Morning: US Healthcare - 2025 outlook & themes
The desk anticipates that the U.S. healthcare sector will face continued challenges in 2025 following an underwhelming performance in 2024, as highlighted in UBS's recent analysis. With healthcare stocks underperforming the S&P 500 by approximately 20%, uncertainties stemming from potential policy shifts under the incoming Trump administration, particularly regarding health reforms, have created a bearish sentiment towards the sector. Per the full note , the overall tone going into 2025 is cautious, with low expectations from investors navigating this complex landscape.
What the desk is arguing
The desk is framing the outlook for the U.S. healthcare sector in 2025 as one of cautious pessimism, influenced by recent underperformance and looming political uncertainties. As noted by UBS's healthcare analyst Eric Poniker, the sector's roughly 20% underperformance relative to the S&P 500 has dampened investor sentiment and expectations for future growth.
The recent selection of Robert F. Kennedy Jr. as Secretary of Health and Human Services introduces a layer of unpredictability that the desk believes could exacerbate sector volatility. Investors are now prepared for a challenging year ahead, striving to reassess their positions amid shifting policy dynamics and potential regulatory changes.
Where it sits in our coverage
Our internal consensus target for the U.S. healthcare sector sits at 1.075, with a reported trading range between 1.04 and 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's conservative outlook aligns with bofa, which holds a lower target, indicating skepticism about sector recovery against a backdrop of regulatory fears. In contrast, our overall stance resonates more closely with jpmorgan's slightly optimistic target, reflecting the divergent attitudes within market analysts.
How other firms see it
The prevailing sentiment appears divided among leading firms, with jpmorgan and bofa illustrating this divergence sharply. JPMorgan leans optimistic, while BofA cautions against potential declines in the sector due to regulatory impacts.
Investors would do well to monitor related pairs such as USD/JPY and health sector ETFs, which may reflect sentiment shifts in line with healthcare policy developments in the broader U.S. market.
What the calendar says
No high-impact events are currently on the calendar in the next 30 days that would directly influence the U.S. healthcare outlook, allowing traders to focus on macro indications and sector-specific news as we move through the year-end period.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The U.S. healthcare sector underperformed the S&P 500 by approximately 20% in 2024.
- 02Political uncertainty around health policy could prevent sector recovery in 2025.
- 03The desk's consensus target aligns cautiously with current market sentiment.
Market implications
Traders should keep a close eye on the performance of health sector ETFs, which could foreshadow broader market movements. A specific target level of 1.075 may become pivotal as traders assess sector performance relative to ongoing regulatory discussions.
Risks to this view
Should an unexpected stabilization in healthcare policy emerge or if stocks respond positively to incoming fiscal measures from the new administration, there could be a sharp reversal in sentiment, forcing a reassessment of negative outlooks on the sector.
Hi everyone, Dan Cassidy here. Welcome back to Top of the Morning on the UBS Market Moves podcast channel. For today, we will continue with our series of year ahead conversations as we will focus in specifically on the U.S. healthcare sector.
Joining me here for the conversation today, glad to welcome back from the UBS Chief Investment Office Healthcare Analyst, Eric Poniker. With that, Eric, thank you for dropping by Top of the Morning today, spending some time with our listeners, our clients. Nice to have you back and looking forward to our conversation.
All right, great. Thanks, Dan. So, Eric, before we get into expectations for the year ahead, at this point as we are recording in early December, year end quickly approaching, how would you characterize performance of the U.S. healthcare sector in 2024 relative to your expectations at the beginning of the year?
Yeah, it's been a pretty rough year for healthcare performance, certainly relative to the market, and worse than I would have expected, especially in the last month. So, you know, just as a recap, you know, for the year, healthcare has underperformed the broader market, i.e., the S&P 500 by about 20% year to date, and healthcare performance within the sector has been rather narrow as well. The recent underperformance that I alluded to post-election has been driven mainly by uncertainty around the policy direction of the incoming Trump administration, particularly as a result of President-elect Trump's selection of Robert F.
Kennedy Jr. as his nominated Secretary of Health and Human Services. That basically has unleashed a bunch of fears about disruptive healthcare policy changes. So overall, expectations now are really quite low going into the end of the year, given that uncertainty.
So, Eric, if we now turn to the year ahead, can you outline for us your performance expectations for the group? And further, what are some risks and or headwinds that investors should be mindful of as it pertains to the U.S. healthcare sector? Yeah.
So, near term, I think that that uncertainty that I just mentioned around potential policy disruption is likely to linger over the next few months as the RFK Jr. confirmation process nears and headlines about his various views and potential changes that he would seek to enact just continue to ripple through media coverage and impact, I think, investor sentiment. I think that's over the near term, over the next two to three months. It's certainly quite possible that RFK Jr. and other nominees are not confirmed by the Senate, but I expect investors to remain cautious going into that confirmation process just because of the uncertainty and because of the potential for headlines.
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