With equity market volatility rising and investors acting jittery due to the lingering US/China trade war, many market participants are favoring defensive sectors and the related exchange traded funds. That rush to defensive ideas is benefiting the previously lagging healthcare sector, the second-largest sector weight in the S&P 500.
The Health Care Select Sector SPDR ETF (NYSEArca: XLV), the largest exchange traded fund (ETF) dedicated to the sector, is up 2.52% this month while other, more aggressive sectors and broader equity benchmarks scuffle.
Among other factors, XLV and friends have been dogged this year by speculation that Medicare For All could become a reality if Democrats win the White House in 2020. Many of the most visible Democratic contenders for that party’s 2020 presidential nomination are embracing Medicare For All. However, XLV’s recent price action suggests the benchmark healthcare ETF is shaking out of its slumber.
“As the S&P 500 has tumbled 4% this month, the XLV health care sector ETF has held slightly positive. The same pattern has played out this week with health care higher and the broader market lower,” reports CNBC.
Healthcare Rebound Potential
The healthcare sector, though, remains a brighter spot in the earnings landscape. Health-related companies are expected to report the second highest profit growth of the benchmark S&P 500’s 11 sectors for the first quarter, rising 4% year-over-year, according to FactSet.
Investors embraced healthcare stocks for the sector’s growth and defensive characteristics, providing investors with yields and valuations that are less stretched than other yield-producing stocks like utilities. Some market observers believe the sector’s selloff is overdone and that healthcare stocks could be poised to bounce back.
“We’re really trying to target good companies that are big players in investible themes, and health care as a sector has struggled this year but it’s been resilient over the past month. It’s outperformed pretty much everything else,” said Mark Tepper, president of Strategic Wealth Partners, in an interview with CNBC.
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