Shares of the Health Care Select Sector SPDR Fund ( XLV ) are trading lower by 8.6% to $132.86 over the past week as tariff announcements from President Donald Trump last week spooked investors and dragged major sectors of the market lower.

While healthcare is often viewed as a defensive play during times of uncertainty, the sector is not immune to the broader economic implications of escalating trade tensions.

What Is XLV?

The Health Care Select Sector SPDR Fund ( XLV ) is an exchange-traded fund that tracks the performance of the Health Care Select Sector Index, which includes large U.S. healthcare companies across pharmaceuticals, biotechnology, healthcare equipment and managed care. Top holdings include Johnson & Johnson , UnitedHealth Group Inc ( UNH ) , Pfizer Inc ( PFE ) , Eli Lilly And Co ( LLY ) and Merck & Co Inc ( MRK ) .

Although healthcare demand tends to be less cyclical than sectors like industrials or energy, many of XLV's components are exposed to global markets, supply chains and regulatory dynamics—all of which can be disrupted by a trade war.

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Why Are Tariffs Hitting Healthcare—and XLV?

At first glance, healthcare might seem like an unlikely victim of tariff tensions, but the industry is more globally interconnected than it appears. Here's how tariff escalation is weighing on XLV and its underlying holdings:

Global Supply Chain Disruptions: Many medical devices and pharmaceutical ingredients are manufactured or sourced overseas. Tariffs on imported materials from countries like China can increase production costs for companies like Medtronic and Abbott Laboratories, which rely on international supply chains to maintain margins and deliver products at scale.

Pricing Pressures Intensify: Healthcare companies already face intense political scrutiny over pricing. Tariffs add another layer of cost inflation that may be difficult to pass along to consumers or insurers. That's especially challenging for drugmakers and device manufacturers that operate under tight pricing regulations or depend on long-term contracts.

Global Growth Matters: Multinational pharmaceutical companies such as Pfizer ( PFE ) and Johnson & Johnson ( JNJ ) derive a significant share of their revenue from international markets. A slowdown in global economic growth due to trade tensions can dampen demand for branded drugs and medical products abroad, squeezing top-line growth.

Market Volatility Hits Sentiment: Even though healthcare is traditionally considered defensive, the sector is still susceptible to broader market moves. Investors often rotate out of equities—including healthcare—during times of heightened uncertainty. Additionally, biotech and life sciences stocks, many of which are included in XLV, tend to be more volatile and sensitive to shifts in investor risk appetite.

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