Health Care Lags SPY At 24-Year Low

The price ratio of the Health Care Select Sector SPDR Fund (XLV) to the S&P 500 (SPX) ETF (SPY) has fallen to its lowest level since March 2000. This places health care at a multi‑decade relative extreme versus the broad U.S. equity market after a prolonged period of underperformance.

Historically, similar extremes in the XLV/SPY relationship have coincided with regime shifts favoring defensive sectors. After the dot‑com peak in 2000 and during the post‑GFC phase from late 2008, health care indices outpaced the S&P 500 (SPX) for years as investors migrated toward stable earnings and lower volatility exposure.

The current setup meets key conditions observed in those episodes: a multi‑year low in the ratio and a backdrop where prior leadership has been concentrated in cyclical growth and broad‑market benchmarks. In such environments, capital has often rotated into health care as macro growth slows or volatility rises, lifting XLV relative to SPY.

Within the sector, large benchmark constituents tend to dominate any mean‑reversion phase. UnitedHealth Group (UNH), Eli Lilly (LLY), and Johnson & Johnson (JNJ) together represent core pillars of XLV, so sustained XLV outperformance would typically require relative strength from these bellwethers alongside broader health care equities.

While past episodes show that extremes in the XLV/SPY ratio can precede multi‑month to multi‑year leadership shifts, outcomes have been conditional. In more recent years, health care has occasionally remained a laggard even after appearing relatively cheap versus the index, underscoring that valuation and positioning alone do not guarantee a durable reversal.