Healthcare: Pockets of Alpha

The healthcare sector, down 3.8% year-to-date and the worst performer among S&P 500 sectors, presents selective opportunities despite weak aggregate earnings growth. While the sector faces headwinds with the lowest forward profit margins and weakest 2026 EPS growth outlook, specific subsectors show promise: Pharmaceuticals are rerating as GLP-1 economics mature, Biotech benefits from M&A activity, and smaller-cap healthcare companies outperform large-cap peers. The recommendation is a market-weight position focusing on areas with improving earnings, margins, and catalysts rather than broad sector exposure.