Healthcare feels like its on life support, but is it dead? One should not firmly declare that feeling, as it did record its first 4 week winning streak since last December and early this year. The gains were mild the last 3 weeks, but it was the best performing group last Friday, on a soft session. We know trends tend to persist, much more likely than they are to reverse, so overall one should proceed with caution. The argument that this space will outperform if investors become conservative is flimsy at best. Obviously market participants have become yield starved, but healthcare has not kept pace with the bond proxy like groups on a YTD basis, like real estate and utilities have (currently the XLRE and XLU are the 2nd and 4th best major S&P sectors in 2019 thus far).
The chart below shows the YTD performance thus far of all the major S&P sectors. Each of the 11 are positive, but if you want to make an individual stock analogy, one could comment on the “weakness” of healthcare. In a broad bull market, the vast majority of stocks will rise, but that is where stock picking comes into play, as the more astute investor will find leaders that could rise 40-50% or more, while the median stock will rise 10-12%. Should the fact that healthcare is “lagging”, mean traders should avoid seeking names in healthcare? Not necessarily, but keep in mind the bulk of a stocks gain emanate from the very specific sector it comes from.
The mega cap pharma names saw value in spinning off animal related names. Of course they do pet owners will spend wildly at the veterinarian office. However the stocks of the newly created names have diverged on different paths since trading on their own. PFE which spun off ZTS, has been the winner higher by 47% YTD and 39% over the last one year period. Below is the chart of ELAN which was spun off from LLY, and how it was presented in our 9/16 Healthcare Note. It is LOWER by 13% YTD and down 24% over the last one year period. The suggested pivot was NOT hit, but I believe this one trends lower. It demonstrated poor relative strength this week falling 4%, while the PPH ROSE 1.2%.