The post-election bounce in diversified healthcare exchange traded funds, including the Vanguard Health Care ETF (NYSEArca: VHT) and the Health Care Select Sector SPDR (NYSEArca: XLV), is not surprising.
After all, the healthcare sector, the second-largest sector weight in the S&P 500, has been a laggard this year primarily because few if any so-called experts forecast Republican Donald Trump defeating Democrat Hillary Clinton to become the 45th U.S. president.
It was Clinton’s harsh rhetoric against high pharmaceuticals prices and often sizable leads over Trump in various polls that were burdens for healthcare stocks and ETFs for much of this year.
For XLV and rival healthcare ETFs, the good news is that the U.S. economy moving into the late-cycle phase, overall growth may slow and signs of an economic slowdown could pop up. Consequently, investors may also turn to defensive sectors that are less economically sensitive, such as health care.[related_stories]
Still, some risks linger for the healthcare sector.
XLV “is trading near a significant level of support/resistance. The recent increase in selling volume along with recent close below the dotted trendline and the 200-day moving average suggests that the bears are in control of the momentum. At this point, traders will continue to keep an eye on this chart because the 50-day moving average has started to trend downward and a cross below the 200-day moving average near $70.07 will likely signal the beginning of a long-term downtrend,” according to Investopedia.