The end of 2024 marked the second year in a row the healthcare sector trailed the S&P 500 Index. While the sector can lag the market from time to time, the degree of underperformance was extremely unusual. For the two-year period through the end of 2024, healthcare fell behind the index by 53 percent, the biggest gap of any rolling two-year period since at least 1991.

As a new year gets under way, investors might wonder what it will take for healthcare to get out of its slump. Some patience may be required: Uncertainty created by Robert F. Kennedy Jr.’s nomination to head the Department of Health and Humans Services (HHS) weighed heavily on the sector at the end of this past year and could continue to cause volatility near-term as we await the outcome of his confirmation hearings.

But investors might also benefit from recognizing that the sector has many other positive long-term drivers in play. Furthermore, while these near-term headwinds may prove less impactfu