The Health Care Select Sector SPDR ETF (NYSEARCA:XLV) is having a frustrating year. The fund sits at $149, down about 3% year-to-date while the broader market grinds higher. The good news for XLV holders: the fund has clawed back roughly 14% over the past year, and the 2026 setup looks meaningfully different from the policy fog that smothered healthcare in 2025. The two things that will decide whether XLV finally rejoins the S&P 500 over the next 12 months are very specific, and both deserve close attention.
The fund and where it stands now
XLV is a market-cap-weighted slice of S&P 500 healthcare, and that weighting matters more than usual right now. The top five names, Eli Lilly (NYSE:LLY | LLY Price Prediction), Johnson & Johnson (NYSE:JNJ), UnitedHealth Group (NYSE:UNH), AbbVie (NYSE:ABBV), and Merck, dominate the basket. Lilly alone carries a nearly $1 trillion market cap, making it the gravitational center of the fund. That single name is up roughly 41% over the past year, while UnitedHealth has rebounded about 23% year-to-date after a brutal 2025 marked by a cyberattack and DOJ scrutiny.
Sector demand is structurally sturdy. Personal consumption on healthcare services reached $3.70 trillion in April 2026, up roughly $206 billion year-over-year. The question is who captures that spend, and at what margin.
The macro factor that matters most: drug pricing policy
Watch the pricing agreements between Washington and large pharma. PineBridge’s 2026 outlook flags that a 15% cap on pharmaceutical imports was agreed to in recent bilateral trade deals between the US and key trading partners, alongside more workable Medicare and Medicaid pricing negotiations. AbbVie and Merck have already cut deals trading U.S. manufacturing investment for tariff and pricing exemptions. If the framework holds, the policy overhang that compressed XLV multiples in 2025 keeps lifting.
What to monitor: CMS announcements on Inflation Reduction Act Part D negotiation rounds, and any USTR press releases on pharma tariff carve-outs. Check monthly, and event-driven around any executive order. The transmission to XLV is direct: four of the top five holdings derive over half of revenue from prescription drugs, so every basis point of net price preserved flows to operating income. A reversal, meaning new most-favored-nation pricing or removal of carve-outs, would hit Merck and AbbVie hardest given KEYTRUDA’s roughly $8 billion quarterly run rate and AbbVie’s reliance on Skyrizi and Rinvoq pricing.
The fund-specific factor: Lilly’s GLP-1 franchise is XLV
Concentration risk in XLV is really GLP-1 risk. Lilly’s Mounjaro generated $8.7 billion in Q1 2026, up 125% year-over-year, and Zepbound added $4.2 billion, up 80%. Together, the franchise drove 65% of Lilly’s Q1 revenue. With Lilly as the fund’s largest weight, XLV’s NAV is unusually sensitive to one product family.
The variable to watch is realized price. Lilly posted 65% volume growth against a 13% realized price decline in Q1, primarily from China’s NRDL listing and rebate pressure. Volume has masked the price slide so far. The newly approved oral GLP-1 Foundayo (orforglipron) is the swing factor: if launch pricing holds in the U.S. and Europe, Lilly’s $82 billion to $85 billion 2026 revenue guide looks conservative. If insurer formularies force aggressive rebates, the price decline accelerates and the largest XLV constituent re-rates lower. Lilly reports Q2 in early August, and the orforglipron net price commentary on that call is the single most important data point for XLV holders this summer.
What to act on
The macro signal: if U.S. trade deals preserve the 15% pharma import cap and Medicare negotiations stay on the current track, XLV’s policy discount keeps narrowing. The fund-specific signal: Lilly’s Q2 earnings disclosure on orforglipron pricing will set the trajectory for roughly the largest weight in the fund, and by extension, for XLV itself.
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