Don't just see it as a "safe haven"! The US medical sector tears off its defensive label, and the three major investment opportunities to watch in 2026.

For a long time, the healthcare sector in the US stock market has been considered a defensive sector, thanks to the stable growth trend of industry leaders and substantial dividend yields. However, this market positioning is quietly undergoing a change. After underperforming the market for several years, the healthcare sector saw a strong rebound in the previous quarter, becoming the best-performing sector among the 11 major industries in the S&P 500 index. This strong rebound was attributed to the tariff agreement reached with the Trump administration, a flurry of mergers and acquisitions, and the broad prospects of a new generation of weight loss drugs. Meanwhile, as concerns about the overvaluation of tech stocks intensify among investors, sectors like healthcare, which had previously performed poorly, have become more attractive to investors seeking other growth opportunities. In this context, many investment professionals expect the upward momentum of the healthcare sector to continue until 2026. "Many investors are currently scrutinizing tech stocks, wondering 'how long can this trend last? How much more can they rise?'" said Bob Lang, Chief Options Analyst at Explosive Options. In contrast, Lang views the healthcare sector as a more aggressive investment target. He added, "Investors are flocking to healthcare stocks that they consider to have value and offer higher returns. Everyone is chasing high-yield, high-performing stocks, and the healthcare sector is among the top performers." However, despite the new growth opportunities in this sector, investing in healthcare stocks in 2026 will still be a game for stock pickers. "Some segments of the healthcare sector require investors to exercise extra caution, but there are also truly bright spots in the sector," noted Brian Mulberry, Portfolio Manager at Zacks Investment Management. "In the new year, the key to investment success will be identifying companies that will benefit from new rounds of regulatory policies." Here are three core trends to focus on in the healthcare sector in 2026: Weight loss drug race track Weight loss drugs have been a hot topic in the healthcare sector over the past three years. Analysts predict that this trend will continue to heat up in 2026, with oral obesity treatment drugs becoming the core catalyst driving this trend. The US Food and Drug Administration (FDA) is expected to make a decision early in 2026 on the approval of Eli Lilly's oral obesity treatment drug. Prior to this, a similar competing oral drug from Novo Nordisk A/S Sponsored ADR Class B received regulatory approval for market entry in late December last year. Goldman Sachs Group, Inc. predicts that with the approval of this series of drugs, the weight loss drug market will open up new growth space, with the market size expected to reach $95 billion by the end of the decade. At the same time, as per the agreement with the Trump administration, starting in 2026, injectable weight loss drugs will be covered by the U.S. federal Medicare, benefiting more patients. "With the continuous improvement of drug production capacity, continuous innovation especially breakthroughs in oral drugs, as well as successful entry into core markets such as federal Medicare and Medicaid, I believe the weight loss drug trend will continue its high-speed growth," said Kevin Gade, Portfolio Manager at Bahl & Gaynor. Pharmaceutical companies, including Eli Lilly and Novo Nordisk A/S Sponsored ADR Class B, are also intensifying the development of a new generation of GLP-1 class weight loss drugs, aiming to achieve breakthroughs in drug frequency, efficacy, side effect control, and ease of use. "The emergence of GLP-1 drugs allows us to view some pharmaceutical companies from the perspective of tech companies, with growth prospects that traditional pharmaceutical companies find hard to match," evaluated Mark Malek, Chief Investment Officer at Sibert Financial. However, the price war between the two industry leaders in the obesity treatment drug market still looms over the sector. The two companies are vying for market dominance through various means, including cooperation with drug benefit management organizations, providing discounts to self-pay patients, and signing medical insurance supply agreements with employers drug benefit management organizations are responsible for managing drug benefits for the American public. David Miller, Co-Founder and Chief Investment Officer of Catalyst Funds, believes that the intense competition among major pharmaceutical companies in the low-cost weight loss drug market in 2026 may make the investment prospects in this sector more opaque. "While there are investment opportunities in this field, profiting from it has become much more difficult." Merger and acquisition boom The concentrated outbreak of mergers and acquisitions in the healthcare sector in the second half of 2025, combined with expectations of lower financing costs due to the Federal Reserve's interest rate cuts, is injecting strong confidence into the industry's continued recovery. According to data compiled by analysts Michael Shah and Andrew Galler, as of December 1st of last year, there were 28 mergers and acquisitions in the healthcare sector worth more than $1 billion announced or completed, compared to 25 for the entire year of 2024; in terms of transaction volume, the total amount of mergers and acquisitions in the healthcare industry in 2025 exceeded $103 billion, far surpassing the $63 billion in 2024. "We can finally express optimism about the industry's prospects for 2026 with confidence, rather than just hoping or remaining cautious," said Arda Ural, head of the Americas region's life sciences business at Ernst & Young. By mid-December of last year, large pharmaceutical companies held about $200 billion in cash reserves, with strong balance sheets and sufficient flexibility for mergers and acquisitions. Facing a revenue gap due to the impending expiration of patents for several of their top-selling drugs, pharmaceutical companies' motivation for acquisitions will continue to rise. Next week, the annual J.P. Morgan Healthcare Conference, a major event in the healthcare sector, will kick off in San Francisco, serving as a focal point for industry mergers and acquisitions. "Large pharmaceutical companies urgently need to fill the gap in their research and development pipelines," said Terence McManus, healthcare investment portfolio manager at Bellevue Asset Management. "With ample funds and a stable regulatory environment, the merger wave will be the industry's main theme throughout 2026." As another important form of merger and acquisition, the initial public offering (IPO) market is also showing signs of revival, with biotech companies performing particularly well. Compiled data shows that in 2025, biotech IPOs on U.S. exchanges raised a total of $11 billion, a 61% increase from the previous year. Investors' enthusiasm for this high-risk track can also be seen in the performance of the Nasdaq Biotechnology Index: the index rebounded over 50% from its April low and hit a historical high in December. Health insurance industry In contrast, the growth prospects of health insurance companies face more uncertainty. Insurance companies focusing on the Federal Medicare Advantage plan market were initially hopeful due to President Trump's re-election. They expected the Trump administration to increase financial subsidies to private contractors for elderly Medicare. However, things did not go as planned as these insurance companies faced cost pressures in the Federal Medicare and Affordable Care Act (also known as "Obamacare") business segments. Industry giants like Molina Healthcare Inc. (MOH.US), UnitedHealth Group Incorporated (UNH.US), and Centene Corporation (CNC.US) saw their stock prices plunge by over 30% in 2025, suffering heavy losses. On the positive side, health insurance belongs to the short-cycle business sector, meaning that even under pressure on profit margins, companies can adjust their insurance product pricing in the following year. Some investors believe that the worst period for the industry may have passed, and current stock prices already reflect the potential risks. However, from a bearish perspective, the subsidies related to the Affordable Care Act are set to expire, which could lead to millions of Americans opting out of buying health insurance. This could not only directly impact the revenue of insurance companies but also trigger adverse selection where young and healthy groups exit the health insurance market, leaving older and weaker groups as the main insured group, further pushing up the insurance companies' claims costs. "There are significant value investment opportunities in the health insurance industry," said Christopher Hart, Portfolio Manager at Boston Partners. However, he also admitted to remaining cautious about the sector, saying, "I will only consider increasing my investment in the health insurance sector when the prospects for industry profitability become clearer."