Update-1 3/28/23..Sector rotation continues with energy, materials leading today and healthcare, technology down slightly. Consumer confidence rises to 104.2 despite bank failures. Commodities strong.VikingTherapeutics (VKTX) rose 69% on Phase 1 data for Dua lGLP-1/GIP receptor agonist, for potential obesity treatment.
- Large cap biopharma mixed with leaders; VRTX, GILD, LLY,REGN; laggards MRK,RHBBY.
- UNH down 1.93%; XLV down 0.6% to $127.05; IBB holding $126.
- SMID biotechs weak with XBI down 0.67% to $74.45; many weak small caps:CYRX MRTX NTLA VCYT.
- IHI down 0.8% to $52.38.
- QQQ down 0.53% to $307.12.
Healthcare Stocks Offer Shelter from Macro Headwinds
Healthcare stocks are supposed to be defensive plays in a choppy or skiggetty market. However over the past 18 months the XLV is flat and down 6% over one year. But with all the MACRO turmoil the healthcare sector should be safe haven.We apparently reached peak momentum in many growth sectors in January 2021 followed by a downtrend and choppiness in 2022. Energy is one of the few sectors in a solid two year uptrend but is weak in 2023. The narrative is very bearish lately with major concerns in the banking industry from the failure of Silicon Valley Bank with collateral damage to regional banks.So the market is quite volatile but who knew the tech heavy QQQ was up over 16% YTD? In troubled markets innovation and new products can still create excitement.
Here is what happened in the market over the past week:
- Financials and small caps were flat with the IWM down over 16% YTD.
- Large cap tech is the new leader with the QQQ up 16% recovering from a terrible 2022 that bottomed last October .
- Energy and materials came back maybe because of a weaker dollar
- Financials (XLF) are among the worst sectors teetering just above October lows. Only JPM shows gains.
Small cap biotech (XBI) lost all gains from recent rallies in 2022 and can barely hold the $74 level. The 2021 January highs were $170 on the XBI! The equal weight IBB is holding gains for July 2022 and over one year is down only 3.2%. We have favored large cap biopharma over the years because of modest growth and dividends. Unless government pricing legislation gets more onerous most of the of the large cap healthcare stocks are strong holds through the MACRO turmoil. Regeneron and Vertex enjoyed a spurt this week. MRK sold off from its Q4 huge rally that took the stock from $85 to $115 in 3 months! Only Pfizer is don in the dumps but could be considered a value play. ABBV is lagging from the old Humira patent expiration news and this could be a could entry point above the $140 lows.
Our two top mutual fund picks are: T.Rowe Price Health Sciences (PRHSX) and Fidelity Select Medical Technology (FSMEX).
We offered small cap biotech healthcare and biotech picks in this post. Have look at EVH,PACB and QDEL. The major issue for small caps is financing where regional banks are weak.
The XLV was hit by the UNH downdraft in early 2023 yet still is a core holding in healthcare portfolios. We have noted below additional components in constructing a diversified healthcare portfolio and a major one is MedTech. The iShares U.S Medical Devices ETF (IHI) is up 10% from October lows. Among the top holdings are great companies like Abbott (ABT), Boston Scientific (BSX), Medtronic (MDT), Idexx (IDXX) and Becton Dickinson (BDX). The IHI offers good diversification in any healthcare portfolio.
Summary For Healthcare Portfolios
- Overweight large cap biopharmaceuticals.
- Add MedTech weighting: IHI and PRHSX.
- XLV? a safe play but lets see if it trends up.
- IBB is looking better
- XBI is a momentum, small cap ETF for experienced traders.
|10/25||%||12/31||% Perf||12/31/21||12/31/22||%Perf||3/25||% Perf||
|iShares NAZ Bio||IBB*||136||15||151.5||25.7||152.62||130.55||-3.22||125.87||-4.13||–|
|iShares Russell 2k||IWM||163||10||196.4||18.3||222.45||174.36||-16.54||171.79||-1.47||d|
|SPDR S&P Bio||XBI||117||10||140.8||48||111.96||83||-19.16||74.19||-10.61||d|
|T.Rowe Hlth Sci||PRHSX||n/a||5||99.65||n/a||104||89||-8.22||86.35||-3.86||–|
|iShares U.S MedT||IHI||50||10||54.83||65.85||52.57||-11.22||52.52||-0.1||u|
|Bristol Myers Sq||BMY||71.58||-6.53||67.68||-5.93||–|