Healthcare Sector Setting Up for a Catch-Up Trade in H2?
Healthcare Sector Earnings Growth Slows in 2025, Despite Potential
Updated June 03, 2025
The healthcare sector’s expected earnings per share (EPS) growth has decelerated faster then anticipated in 2025. Despite this slowdown, healthcare still ranks among the sectors with the strongest projected growth this year, alongside technology and dialog services.
Bank of America analysis indicates that while the sector reported solid Q1 2025 earnings, revisions for Q2 and Q3 show lower or even negative growth. Full-year 2025 estimates, initially at 16% in April, have as dropped to 9%.
Several factors contribute to these headwinds. Potential policy shifts, including appointments and attitudes toward vaccines, tariff concerns, Medicaid funding reductions impacting lower-income individuals’ access to prescriptions and healthcare services, and presidential initiatives to lower Medicare prescription costs, all play a role in the healthcare sector’s performance.
Even Eli Lilly, a major player in the pharmaceutical space known for drugs like zepbound and Mounjaro, experienced a 4% decline as of May 30, 2025, even though its stock is currently oversold on daily and weekly charts.
Johnson & Johnson has performed well, with a 9.25% year-to-date increase. The iShares U.S. Medical Devices ETF also shows strength, with a 6.13% gain year-to-date.
The lack of relative strength in the healthcare sector presents a puzzle, considering its earnings trends. The healthcare sector’s expected EPS growth is stronger than that of the communication sector this year.
What’s next
Monitoring the relationship between earnings trends and sector performance will be key. The healthcare sector may become an attractive addition to client accounts in the future.