Healthcare the New Breakout
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Over the past few weeks, money has been rotating out of tech and into new sectors. Breadth is a sign of health in a bull market. In recent weeks we’ve discussed several sectors that have benefited; many of those trades are winners.
One major beneficiary of the rotation is Healthcare. This sector struggled for over 5 years as post-Covid normalization, pricing pressure, and Trump/regulatory uncertainty dominated (timeline below). Long-time readers will remember we wrote about those issues at the time and suggested avoiding the sector altogether. As a result, the sector fell to depressed valuations.
The weekly chart above shows a new breakout of the 200-day moving average. Many of the aforementioned headwinds have started to ease, especially around pricing and policy. As investors rotate their investments, they are starting to favor sectors with earnings stability and attractive valuations.
From an earnings perspective, Healthcare was the only sector predicted to report a year-over-year decline in earnings. Earnings revisions were down -15%, an astoundingly bad number and near rock bottom. And still, stock prices are rebounding. When stocks go up despite bad news, that’s usually a signal of oversold conditions starting to reverse.
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