The market just blinked. The forward price-to-earnings ratio for the U.S. healthcare sector has dropped to 16.63. That’s not a typo. That’s the lowest level in over a year, and it’s brushing against a multi-decade relative discount. For a sector that historically trades at a premium to the broader S&P 500, this is not business as usual. It’s a signal. And it’s flashing.
The forward P/E ratio reflects what investors are willing to pay today for a dollar of expected earnings over the next twelve months. When that number drops, it usually means one of two things. Either earnings are collapsing, or prices are falling faster than fundamentals. In this case, it’s the latter. Earnings across the sector have remained stable. In some corners, they’re even climbing. But valuations are compressing. That’s the setup.
The forward PE ratio for the Healthcare Sector is down significantly.
Is there currently opportunity in healthcare stocks? pic.twitter.com/h45c8wNGDl
— Dividendology (@dividendology) June 18, 2025
AllianceBernstein’s latest sector note calls this the “deepest discount to the broader market in nearly 40 years.” Healthcare’s share of the total U.S. equity market is now at a 15-year low. That’s not because the sector shrank. It’s because tech ballooned. Investors chased AI and software multiples into the stratosphere, leaving healthcare behind. But the fundamentals didn’t go anywhere. Aging demographics, rising demand for care, and the slow but steady integration of AI into diagnostics and drug development are still in play.
The breakdown is worth watching. Drug manufacturers are trading at an average forward P/E of 26.33. Healthcare plans sit at 17.39. Medical devices are higher at 33.12, but even that is below their five-year average. The outlier is health information services, which are still commanding a forward P/E above 50. That’s the AI halo effect. But the rest of the sector is trading like it’s 2012.
Healthcare is one of the few sectors that historically outperforms during economic slowdowns. It’s defensive. It’s cash-flow rich. And it’s politically insulated compared to energy or defense. With inflation still sticky and rates holding higher for longer, that matters. Investors looking for earnings stability without paying tech multiples are starting to circle back.
Sources:
https://en.macromicro.me/series/20527/s5hlth-forward-pe-ratio