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Healthy Health Care Rotation

The S&P 500 Healthcare sector has made significant gains as it has moved from one of the weakest S&P 500 sectors to one of the strongest, at least over the past month. So, is still outperformance cycle sustainable for one of the market’s cheapest and one the best value sectors?


Healthcare sector is comprised of two major industry groups. One is the companies that manufacture health care equipment and supplies or provide health care related services. The second is companies involved in the research, development, production and marketing of pharmaceuticals and biotechnology products.


Although the Health Care sector still lags S&P 500 Index as well as many of its S&P 500 sectors on a year-to-date basis the recent price breakout as well as relative strength breakout are technically significant as these actions suggest the start of a rotation into this industry. Despite the political implication of this group heading into a major Presidential Election Year in 2020 we are intrigued when the recent technical developments.


Given the sharp rally in the stock market this year investors may be searching for underperforming sectors and stocks that are out of favor in anticipation of the next rotation. It is also possible investors may be anticipating the next phase of the U.S. economic cycle. Health Care tends to excel or relatively outperform their S&P 500 counterparts during the later stages of a business expansion cycle or when the economy slips into a contraction/recession. In a low interest rate environment income investors may also be moving money into Pharmaceuticals as an alternative to the high yielding sectors such as Utilities, Real Estate, and Telecom.


While S&P 500 Health Care sector has gained 13.45% year-to-date (as of 11/25/19), S&P 500 Index (SPX) has returned 24.07% year-to-date. This major discrepancy is likely to attract technical value investors. However, not all Health Care industries and stocks are weak this year. In fact, a couple of the S&P 500 Health Care sub-industry groups have outperformed SPX. Health Care Technology (32.42% YTD), Life Science Tools and Services (24.33%), Health Care Equipment and Supplies (23.35%), Health Care Providers and Services (14.13%), Biotechnology (12.28%), and Pharmaceuticals (4.71%).


Enclosed below are the near-term charts of S&P 500 Healthcare Sector and its sub-industry groups.


Absolute Performance for SPX Sectors during Nov 2019 Source: Courtesy of StockCharts.com

Relative Performance of SPX Sectors during Nov 2019 Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com


Source: Courtesy of StockCharts.com


The leading Health Care names: CVS, ABBV, BMY, BIIB, CAH, AMGN, REGN, CI, VRTX, CELG, HUM, ISRG, and A. Improving Health Care names: ALGN, ALXN, PFE, CNC, MTD, ANTM, ILMN, JNJ, UNH, INCY, HCA, and WCG. Source: Courtesy of StockCharts.com

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