Healthcare stocks have traditionally been seen as a safe haven during market volatility. However, recent developments — particularly President Trump's tariffs and research spending cuts — are changing that perception.

Healthcare's Historical Strength

Historically, healthcare has been among the strongest sectors during late-cycle economies and recessionary periods. The sector has always been considered as a safe area for investors seeking shelter amid broader economic uncertainty. However, the sector is facing new challenges in the Trump administration’s first 100 days.

Rising Uncertainty Under Trump

Investor interest in healthcare has been waning for some time. President Trump’s policies are introducing fresh uncertainty. This is making both small- and large-cap healthcare stocks less appealing.

A recent example is Medpace MEDP, a small clinical research firm specializing in biotech clinical trials. After reporting slower business in its first-quarter earnings. Uncertainty around regulatory changes in Washington continues to weigh heavily on the industry.

Pfizer PFE CEO Albert Bourla recently said uncertainty around President Donald Trump’s planned pharmaceutical tariffs is preventing the company from further investing in U.S. manufacturing and research and development. Pfizer said it expects $150 million in costs from Trump’s existing tariffs this year.

Unpredictable Regulatory Environment

Michael Cherny, an analyst at Leerink Partners, highlighted the significant uncertainty caused by apparent shifts in how the FDA and HHS are being managed, as quoted Yahoo Finance. He noted that the difficulty in gauging the full impact of factors such as funding cuts, tariffs, and declining investor enthusiasm.

From Safety to Struggles

Not long ago, healthcare companies led the IPO market, with $17 billion in equity offerings and strong deal volume. Today, the sector faces mounting pressure. Both biotech firms and large-cap healthcare companies are struggling.

Biotechs are more sensitive to volatility, due to the segment is more vulnerable to the inflation pressure, the interest rate policy and the steady source of funding. Note that biotech stocks, being high-growth in nature, underperform in a rising rate environment.

Still Defensive — But Not Immune

Bank of America Securities analyst Tim Anderson emphasized that while healthcare stocks still behave defensively during downturns, they are no longer considered as safe as they used to be a decade-ago, as quoted on Yahoo Finance.

He cited recent events when investor money flooded into pharma during market downturns, only to retreat after Trump's remarks on drug pricing and pharma tariffs. However, Anderson and others suggest that healthcare remains a solid sector for long-term investors, despite ongoing uncertainty.

A Long-Term Opportunity?

A JPMorgan strategist wrote in January that for investors seeking to reduce exposure to mega-cap tech, healthcare's defensive characteristics and long-term growth potential are worth a closer look. Health Care Select Sector SPDR Fund XLV has lost 4.6% past month but added 1.2% in the year-to-date frame. Moreover, healthcare stocks are currently cheap. 

Low P/E Healthcare ETFs in Focus

Below we highlight a few healthcare exchange-traded funds (ETFs) that have lost the least in the healthcare space and have a low price-to-earnings (P/E) ratio (36 months) at the current level.

Note that The SPDR S&P 500 ETF SPY has a P/E ratio of 24.62X. The EF SPY has lost 0.9% past month and has lost 5.9% so far this year.

iShares Genomics Immunology and Healthcare ETF IDNA – P/E: 19.61X

One-Month Performance: Up 1.3% (as of April 28, 2025)

Year-to-Date Performance: Down 8.8% (as of April 28, 2025)

SPDR S&P Health Care Services ETF XHS – P/E: 15.17X

One-Month Performance: Down 2.6% (as of April 28, 2025)

Year-to-Date Performance: Up 5.5% (as of April 28, 2025)

iShares US Pharmaceuticals ETF IHE – P/E: 22.28X

One-Month Performance: Down 5.1% (as of April 28, 2025)

Year-to-Date Performance: Up 2.0% (as of April 28, 2025)

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Pfizer Inc. (PFE) : Free Stock Analysis Report

SPDR S&P 500 ETF (SPY): ETF Research Reports

Health Care Select Sector SPDR ETF (XLV): ETF Research Reports

SPDR S&P Health Care Services ETF (XHS): ETF Research Reports

iShares U.S. Pharmaceuticals ETF (IHE): ETF Research Reports

Medpace Holdings, Inc. (MEDP) : Free Stock Analysis Report

iShares Genomics Immunology and Healthcare ETF (IDNA): ETF Research Reports

This article originally published on Zacks Investment Research (zacks.com).

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