After sagging last year and stumbling to its first annual loss since 2008, the healthcare sector, the third-largest sector weight in the S&P 500, is getting some of its groove back in 2017 and that is boosting an array of exchange traded funds.
For example, the Health Care Select Sector SPDR (NYSEArca: XLV), the largest healthcare ETF, is higher by nearly 9% year-to-date and its chart shows the potential for more gains.
For 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.
Industry observers argue that medical technology companies can tap into increased healthcare spending among emerging economies while the U.S. market has matured and could experience slower growth. Looking ahead, in the years through 2024, spending growth is projected to average 5.8% and peak at 6.3% in 2020.
XLV “currently looks like it has potential as price is pushing up against chart resistance in the 72 area. XLV is bullishly above both its 50-day and 200-day average. There has been two consecutive higher lows and the chart looks like a bullish ascending triangle. The BPI for healthcare is in an uptrend and recently tested and bounced off the 20-day exponential average, a bullish sign,” reports See It Market.
The pharmaceutical and biotechnology sub-sectors may benefit under a Republican president and Congress as the industries are less at risk of price controls that Democrats vowed to impose. However, investors must consider the potential risks to the sector associated with Republicans’ efforts to undo the Affordable Care Act (ACA), also known as Obamacare.
The impact of a Trump presidency on healthcare stocks remains to be seen. Candidate Trump rebuked Obamacare and if successful in that effort, there would likely be some effect on diversified healthcare ETFs due to their exposure to health insurance providers.
Regarding XLV’s alluring technical situation, “on a break above 72, I think XLV could easily run up to major chart resistance in the 75/76 zone which was the peak in both 2015 and 2016,” according to See It Market.
Year-to-date, investors have added $1.26 billion in new money to XLV.
For more information on the healthcare sector, visit our healthcare category.