Healthcare stocks face gridlock as pharma prices outpace tech for first time in 20 years

Healthcare stocks may face a difficult road ahead as a divided government takes shape. Political gridlock between lawmakers is expected to keep major legislative changes off the table for the next few years, creating an unpredictable backdrop for the broader industry.

Pharma valuations climb past tech

Valuations across the sector are showing unusual trends. Pharmaceutical companies are currently trading at higher valuations than technology firms, marking the first time this dynamic has appeared in two decades.

Because drugmakers have become unusually costly, market analysts are advising a selective approach rather than buying the whole sector. Medical technology and device makers may offer better opportunities for those looking to invest, as several of these companies are now trading at or near multi-year lows.

Policy shifts and market performance

Broader healthcare shares have experienced sudden swings around recent political shifts:

• The State Street Health Care Select ETF gained 3% right after Election Day as diverse subsectors rose together.
• Healthcare names were later caught in a wider market sell-off, leaving the fund virtually flat for the week.
• The fund has climbed about 32% since January 2025, outperforming the S&P 500 by nearly nine percentage points over that span.

Meaningful policy tailwinds for healthcare might not appear until the 2028 presidential election. Any major reversal of current administration policies would require unified Democratic control across the White House, Senate, and House of Representatives. In the meantime, significant regulatory rollbacks remain unlikely in the short term.