Sectors portfolio: The Health Care sector has finally healed
- One of the more prominent reasons for why the U.S. Health Care sector has underperformed this year has been top-down policy uncertainty (i.e., tariffs) and what that could potentially mean for margins.
- But in early October, the Trump administration announced that it had come to an agreement with a large pharmaceutical/biotech firm (Pfizer) that has flipped sentiment by an appreciable degree. Among the more notable aspects to the agreement are that:
- Pfizer has agreed to reduce the prices of many of its drugs under the Medicaid program and to bring them into alignment with prices in other developed countries. That the price cuts apply only to Medicaid drugs is a constructive sign given that it vastly limits the scope of what was originally expected (for instance – price cuts do not apply to drugs sold to private insurers or international markets).
- Pfizer will now be exempt from a looming 100% tariff on branded pharmaceutical imports if it invests in additional U.S. manufacturing.
- What’s even more important is that this agreement is portable – meaning that other large pharma firms could strike similar deals with the Trump administration. If this is the template for the Health Care sector, then it’s certainly less bearish than originally feared.
- And remember, Health Care has been fairly cheap for some time now (see Chart 4 below).
- For our portfolio, we are making the following changes:
- We have upgraded our weighting on Health Care to neutral from underweight last month.
- We have upgraded Energy to neutral from underweight.
- To accommodate both of the above shifts, we have reduced our weights for Tech and Communications. We remain overweight both sectors for now.
- We remain tactically overweight Tech, Communications, Utilities and Staples.
- We remain tactically underweight Discretionary, Industrials, and Energy.
Sector in focus:
- Health Care (BMO SPDR Health Care Select Sector Index ETF - ZXLV)
Chart 1 – BMO ETF sector portfolio for October 2025
| Index | Sector Portfolio | Difference | Weighting | Change from Last Month | |
| S&P 500 | 100.00% | 100.00% | |||
| Tech | 35.37% | 36.50% | 1.13% | Overweight | 36.50% |
| Financials | 13.30% | 13.00% | -0.30% | Neutral | 13.00% |
| Comms. | 9.96% | 11.50% | 1.54% | Overweight | 11.50% |
| Health care | 9.11% | 10.00% | 0.89% | Neutral | 10.00% |
| Disc. | 10.37% | 6.00% | -4.37% | Underweight | 6.00% |
| Industrials | 8.18% | 6.00% | -2.18% | Underweight | 6.00% |
| Energy | 2.82% | 3.00% | 0.18% | Neutral | 3.00% |
| Materials | 1.74% | 1.00% | -0.74% | Neutral | 1.00% |
| Utilities | 2.42% | 5.00% | 2.58% | Overweight | 5.00% |
| Real estate | 1.88% | 2.00% | 0.12% | Neutral | 2.00% |
| Staples | 4.85% | 6.00% | 1.15% | Overweight | 6.00% |
Source: BMO Global Asset Management, October 2025. For illustrative purposes only. Past performance is not indicative of future returns. The portfolio holdings are subject to change without notice.
Chart 2 – BMO sector ETF portfolio weights relative to S&P 500
Chart 3 – Sector returns
| Returns (%) | |||||||
| Index | 50-day MAVG* | 100-day MAVG* | 5-day | Month-to-Date | Quarter-to-Date | Year-to-Date | |
| S&P 500 | 6735.11 | 6527.97 | 6330.20 | 0.29% | 0.70% | 0.70% | 14.51% |
| Tech | 5746.01 | 5389.02 | 5130.64 | 1.50% | 2.39% | 2.39% | 24.66% |
| Communications | 418.04 | 411.25 | 389.31 | 0.11% | -1.08% | -1.08% | 22.36% |
| Financials | 886.97 | 884.83 | 871.99 | -0.82% | -1.10% | -1.10% | 10.26% |
| Utilities | 459.93 | 435.12 | 425.45 | 1.87% | 3.78% | 3.78% | 19.48% |
| Real Estate | 258.38 | 261.97 | 261.96 | -2.20% | -2.42% | -2.42% | 0.96% |
| Discretionary | 1901.76 | 1873.63 | 1812.79 | -0.04% | -0.85% | -0.85% | 3.86% |
| Energy | 671.83 | 670.31 | 662.57 | -1.22% | -1.61% | -1.61% | 2.59% |
| Industrials | 1297.73 | 1285.46 | 1264.29 | -0.70% | -0.64% | -0.64% | 16.32% |
| Healthcare | 1681.98 | 1594.52 | 1577.21 | -0.38% | 3.57% | 3.57% | 4.81% |
| Staples | 867.04 | 885.35 | 890.78 | 0.35% | -0.47% | -0.47% | 1.57% |
| Materials | 563.83 | 572.66 | 566.18 | -1.28% | -1.21% | -1.21% | 6.43% |
*MAVG = moving average. Source: BMO Global Asset Management, Bloomberg, as of October 9, 2025. The 50/100 day moving average is calculated by averaging the closing prices of a stock or asset over the past 50/100 trading days, and is used by analysts to identify trends. Green = more bullish signal. Red = more bearish signal. For illustrative purposes only. Past performance is not indicative of future returns.
Chart 4 – Earnings and valuation
| Earnings | Forward P/E | ||||
| Expected (Y/Y%) | Last Month | Change (%) | Next 12m | Z-Score | |
| S&P 500 | 2.57% | 2.71% | -0.14% | 25.11 | 2.233 |
| Tech | 8.25% | 13.89% | -5.64% | 35.49 | 2.006 |
| Communications | 2.00% | 1.81% | 0.18% | 22.07 | 1.495 |
| Financials | 2.19% | 1.88% | 0.30% | 17.87 | 1.352 |
| Utilities | 1.74% | 1.84% | -0.10% | 20.75 | 1.685 |
| Real Estate | -0.86% | -0.23% | -0.63% | 20.13 | -0.244 |
| Discretionary | -2.03% | -2.13% | 0.10% | 31.37 | 0.987 |
| Energy | -2.39% | -2.84% | 0.46% | 16.96 | -0.166 |
| Industrials | 1.41% | 1.97% | -0.56% | 27.35 | 1.688 |
| Healthcare | 0.12% | 0.18% | -0.06% | 18.62 | 0.573 |
| Staples | 0.18% | -0.49% | 0.68% | 22.05 | 1.376 |
| Materials | 6.08% | 6.97% | -0.89% | 22.58 | 0.909 |
Source: BMO Global Asset Management, Bloomberg, as of October 9, 2025. Y/Y = year over year. P/E refers to Price-to-Earnings Ratio, which analysts use as a valuation metric. The forward P/E ratio (or forward price-to-earnings ratio) divides the current share price of a company by the estimated future (“forward”) earnings per share (EPS) of that company. Z-Score is a measure of how much a data point varies from the average of the entire data set. A positive z-score says the data point is above average. A negative z-score says the data point is below average. The closer the Z-score is to zero, the closer the value is to the mean. Red = more bearish signal. Green = more bullish signal. For illustrative purposes only. Past performance is not indicative of future returns.
Chart 5 – Seasonality chart (average rank over past 35 years)
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