Investors Pour Money into U.S. Healthcare Stocks Amid Improving Earnings, Dealmaking and Attractive Valuations Investors are pouring money into U.S. healthcare stocks, betting that improving earnings, rising dealmaking and attractive valuations will extend the sector's rebound after years of underperformance. The renewed appetite for healthcare reflects a broader shift in investor positioning, with financials also seeing gains. A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., August 4, 2026. REUTERS/Jeenah Moon+1.79%August 5 (Reuters) - Investors are pouring money into U.S. healthcare stocks, betting that improving earnings, rising dealmaking and attractive valuations will extend the sector's rebound after years of underperformance. The renewed appetite for healthcare reflects a broader shift in investor positioning, with financials also seeing gains, as Wall Street's rally expands beyond the handful of AI-linked technology companies that have dominated returns for much of the year. The S&P 500 healthcare index has climbed 11.2% in the past three months to hit a record high, outpacing the S&P 500's 6% rise.Around 50 U.S.-listed healthcare funds attracted $2.44 billion in July, according to LSEG Lipper data, extending June's nearly $1.5 billion inflow and reversing a three-month stretch of net withdrawals."Healthcare offers a rare combination of durable growth, technology-like profitability, attractive valuation and diversification benefits at a time when many investors remain heavily concentrated in the AI theme," J.P. Morgan analysts led by Head of Global Markets Strategy Dubravko Lakos-Bujas said. A Bank of America survey showed global fund managers were net 32% overweight on healthcare stocks in July, up sharply from 14% in June.The surge in healthcare follows a stretch as one of the S&P 500's weakest performers in the first five months of the year, with investors now looking ahead to a sharp improvement in profitability. Earnings for S&P 500 healthcare companies are expected to grow in double digits from the fourth quarter of 2026 through the end of 2027, according to Tajinder Dhillon, head of earnings and equity research at LSEG.Sentiment around the healthcare sector had become overly negative, and recent earnings results and management commentary have helped alleviate some of these concerns, said James Harlow, director of research at Novare Capital Management. Drugmaker AbbVie topped second-quarter profit estimates in its most recent earnings and health insurer UnitedHealth Group beat profit expectations and raised its 2026 forecast. A surge in dealmaking has also added to the sector's appeal, analysts said.M&A value in the sector has reached nearly $284 billion this year, according to Dealogic, approaching 2025's total of $306 billion and topping every other year since 2021. Valuations remain a key point, as the sector has been widely regarded as historically cheap. Healthcare valuations had been depressed for a long time and so there is some opportunity for investors, said Christian Peng, head of healthcare investment banking at Citizens Bank.The sector was last trading at around 18 times its 12-month forward earnings expectations, trading above its 20-year average of 15. The S&P 500 meanwhile, last had a valuation of nearly 20 times its forward earnings. Healthcare will be a key point of debate heading into the November midterm elections, but the expected impact on companies could vary.If Democrats take control of the House, they would likely revive efforts to expand the Affordable Care Act, strengthen Medicaid funding and push back against U.S. President Donald Trump's recent actions to roll back coverage mandates. Such a shift could benefit health insurers with large Medicaid and Affordable Care Act businesses. Hospital chains could also gain from higher insured patient volumes. J.P.Morgan analysts said healthcare equipment and services companies have historically performed well during midterm years, though they do not expect a material change in healthcare policy this year. It's a net positive for the healthcare sector because it means some of the threat of earnings-pressuring legislation could potentially go away, said Eric Parnell, chief market strategist at Great Valley Advisor Group