Healthcare Just Hit a Record Lead Over Tech. 3 Things Could Shrink It

Healthcare stocks have outperformed tech by 35.6 percentage points over the past six months. That is the sectors widest lead in 25 years, built as investors moved money out of AI stocks. According to The Kobeissi Letter, healthcare rose 31.7% over that period while tech slipped 3.9%. That marks a sharp turn from early June, when tech led healthcare by 45.6 points. Rolling six-month performance gap between healthcare stocks and tech stocks, 1999 to 2026. How AI Doubts Pushed Money Into Drugmakers The shift took hold in late spring as confidence in the AI trade weakened. From the end of April to October 26, the SP 500 Healthcare Index rose about 23%, Bloomberg reported. That beat every other sector, with Eli Lilly, AbbVie and Johnson Johnson leading the gains. Goldman Sachs also steered AI-wary investors toward health care in October. The gap widened through October. Morningstars US technology index fell 6.62% that month, while its healthcare index rose 8.82%. Selling in AI stocks then deepened in November. On November 5, the Nasdaq dropped 5.52% on fears of a data-center slowdown. Healthcare insurers and hospital operators had rallied after Democrats won control of Congress. Only the Dot-Com Bust Saw Healthcare Lead by More Those moves left healthcare with a lead rarely seen this century. The Kobeissi Letter outlined only one period with a wider gap. That came after the dot-com bubble burst, when healthcares lead peaked at 48.5 points. In the 2008 financial crisis, its lead topped out at 22.9 points. It reached 21.2 points in the 2022 bear market. The dot-com period also shows how far tech stocks can fall. From March 2000 to September 2002, US tech and communication stocks lost nearly 80%, MSCI research shows. The rest of the market fell 22%. However, MSCI notes that todays tech leaders are profitable and carry strong margins, unlike many dot-com firms. What Could Narrow Healthcares Lead The record gap does not settle where healthcare goes next. Morningstar now ranks healthcare as the third most overvalued US sector after its rally. Earnings also remain a test. Johnson Johnsons October results disappointed and handed the sector its weakest stretch in over a month, Bloomberg reported. Tech has also shown it can bounce. The sector gained 2.5% on November 9 as every SP 500 sector rose. The split matters most for holders of cap-weighted index funds, where tech carries the largest weight. In October, the standard SP 500 fell 0.9% while its equal-weight version gained 5%. If healthcare holds its lead, that drag on tech-heavy funds could persist.