People look at tech stocks as high performers, but health care stocks have been making huge gains. They rallied almost 7 percent to be the biggest S&P 500 performer last month and are nearing the record highs they established in January, according to a report by Keris Lahiff on CNBC.
As explained by Matt Maley, equity strategist for Miller Tabak on the CNBC show "Trading Nation" on Friday, "Overall they (healthcare stocks) look quite good. Look at the XLV, and it's been making a nice series of higher lows and higher highs. The same thing in the IBB biotech chart, it's been doing the same thing."
XLV and IBB are ETFs (Exchange Traded Funds), diversified collections of assets, similar to mutual funds, that trade on an exchange, in the same way as a stock. These investment vehicles, which are said to be easy to use, low cost and tax efficient, have outperformed more than three-quarters of their mutual fund counterparts during the last decade. They are reportedly one-third the price of a typical mutual fund and half the tax cost of the average active mutual fund.
Lahiff said that the XLV healthcare ETF has performed strongly this summer. “Since the end of May, it has rallied 9 percent and is just a 2 percent rally from an all-time high set on January 29,” she added.
According to Maley, "If these two ETFs can take it one step further and move above their January highs and the IBB is very close to doing that, it's going to give it even more momentum."
The IBB biotech ETF remains 2 percent lower than the fund’s annual highs established last week. The ETF is up 10 percent for 2018.
Maley added, "If you see areas like the FANGS and some of these others see a downdraft, that money I think it will continue to flow into some of these health-care names," referring to Facebook, Amazon, Netflix and Google parent Alphabet.
Chantico Global CEO Gina Sanchez said that the market shift might be a “tailwind for health-care stocks.” She explained, "What we're seeing right now is seeing a general rotation, not just from technology to health care, but really from growthy stocks to sort of more robust stocks."
Sanchez added that value stocks usually get a boost when investors think there is some kind of economic weakness. These stocks prioritize less expensive valuation as compared with the rest of the stock market, while growth stocks disregard high premiums and favor projected profit and accelerated sales.
According to Sanchez, "Our view is that we're kind of peaking out. The market is starting to get more defensive, it's happening very subtly, but you're seeing value start to become more attractive and you're seeing staples, health care, these kinds of sectors are becoming very, very attractive." said Sanchez.
Healthcare is the third highest performing sector on the S&P 500 in 2018, trailing only information technology and consumer discretionary.