This Sector Is Suddenly Crushing the Broader Market. Should You Invest $1,000?

The healthcare sector has been on fire in recent weeks.

The S&P 500 Healthcare Sector index is up more than 6% since mid-October. That's more than seven times the gain of the S&P 500 (SNPINDEX: ^GSPC) over the past month. And it's the best-performing S&P 500 sector over that time by far. For investors, the Health Care Select Sector SPDR ETF (NYSEMKT: XLV) is a great way to capture the entire sector.

What's pushing healthcare stocks higher? Well, there are several factors behind it.

Image source: Getty Images.

Strength in pharmaceuticals

One factor helping the sector this past month was when major drugmakers Novo Nordisk (NYSE: NVO) and Eli Lilly (NYSE: LLY) made big news on Nov. 6. The two companies struck a deal with the Trump administration that would exempt them from tariffs for three years and give them access to Medicare and eventually Medicaid patients for their GLP-1 weight loss and diabetes drugs in exchange for heavily discounting the price of those named drugs.

In addition, on Oct. 30, Lilly released third-quarter results that blew past Wall Street's expectations. It also raised guidance and announced that its GLP-1 drug tirzepatide is the world's best-selling drug.

As a result, Lilly's share price has soared 27% over the past month, which has helped drag the entire sector higher. The pharmaceutical giant has the largest market cap in the sector, and the S&P 500 is market cap weighted, meaning price increases of bigger companies' stocks will move the index more.

Another drug giant, Pfizer (NYSE: PFE), struck a similar deal with the White House in late September. It will provide the company with protection from tariffs in exchange for lower drug costs. That stock is up about 4% over the past month.

Amgen (NASDAQ: AMGN) and AbbVie (NYSE: ABBV) shares have also climbed in recent days.

AbbVie, up more than 6% over the past week, released its quarterly results on Oct. 31, and it too bested analysts' predictions. The company has a strong stable of top-performing drugs, including immunology drugs Skyrizi and Rinvoq, which have delivered robust sales growth. Management said it believes Rinvoq will hit $11 billion in annual revenue by 2027, and Skyrizi will reach the $20 billion mark.

And Amgen, which has soared almost 15% in a month, reported on Nov. 4 and also beat expectations on revenue and earnings. Its cholesterol-lowering drug Repatha was recently found to cut the risk of a first heart attack by 36%.

So there are several very strong performers in the health sector, particularly among drug manufacturers, which have some of the largest market caps in the healthcare sector.

A flight to safety

There also seems to be a flight to safety going on, as narratives that the market is overvalued continue to dominate the conversation. And healthcare stocks have a reputation as defensive stocks when the economy or the market turn south.

The turn to a more defensive posture can be seen with the consumer staples, energy, and healthcare sectors all outperforming the technology and consumer discretionary sectors over the past week. In fact, the high-flying "Magnificent Seven" stocks are down about 0.5% over the past week (as measured by the Roundhill Magnificent Seven ETF) as investors may be increasingly wary of a possible bubble in AI-related stocks.

Thus, it may be a very good time to put $1,000 into the red-hot healthcare sector.

Matthew Benjamin has positions in Novo Nordisk and Select Sector SPDR Trust - The Health Care Select Sector SPDR Fund. The Motley Fool has positions in and recommends AbbVie, Amgen, and Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.