This 'dead money' sector leads the S&P
Health care is in the index's top spot for first time since 1988 and looks to remain strong.
“This is where money goes to die,” has described the health care sector over the past decade -- but this year, things are different.
For the first time since 1988, health care leads the S&P with a 12% gain—the most among the 10 main groups; specifically, health insurers, biotechnology companies and drug makers.
Pfizer (PFE) is up 9.5% this year. Eli Lilly (LLY) is up more than 12%; Amgen (AMGN) up 8% and St. Jude Medical (STJ), up nearly 16%. The big winner is Celgene (CELG)—up nearly 40% since the beginning of the year.
But to measure a sector, looking at the ETFs will provide another glimpse, as investors look for confirmation. The SPDR Health Care Services ETF (XHS) is up 11%, the iShares Dow Jones US Pharmaceuticals (IHE) is up nearly 10% and the iShares Nasdaq Biotechnology (IBB) is up more than 10%.
Convinced? Hard as it is to believe it, it’s true. The last time the industry lead the S&P, it finished the year up 42%, compared with gains in the S&P of 27%.
Analyst consensus, according to Bloomberg, is S&P health care companies will climb 8.4% this year, compared to growth of only 0.9% in 2012.
So what’s the deal with health care? Why such gains? First, you can thank Obama, according to industry insiders. Regardless of their political opinions, a lot of people who didn’t have healthcare are about to enter the marketplace, In fact, up to 48.6 million are about to become new customers.
Second, there might be some sector rotation in the mix. While the broad market bull has been on a run, it left health care stocks behind. Now, the sector is catching up and, if that’s the case, there’s still room to run.
Before diving in, there’s room for caution. First, traders know that playing biotech stocks can feel like a day at the casino. Just because Celgene is up doesn’t mean that all of the biotechs are a buy. One bad FDA ruling can slash half of their value, or more, overnight.
Next, if investors assume that some of this rally is due to sector rotation, that means that at some point, there will be a rotation back out. To paraphrase the words of the most interesting man alive, “stay nimble, my friends.”
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The offering could become the second-biggest this year if underwriters exercise an option to buy more shares.
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