Scan to Download ios&Android APP

S&P 500 healthcare index seen as gaining on defensive investing strength

10:00, 25 May 2022

Share this article
In this article:
  • PFE

    52.16 USD
    -0.07 -0.130%

Have a confidential tip for our reporters?

Healthcare stocks
As Tech sells off, the healthcare sector is expected to gain S&P 500 weighting - Photo: Getty Images

S&P 500 healthcare index stocks are proving to be a reliable defensive play during market volatility. US healthcare stocks have gained 1.10% in weighting within the broader S&P 500 Index (US 500) since February 2020 pre-Covid-19 levels. But they remain below historical high weightings – leaving room for further growth over the next year, analysts say.

Health Care Select Sector SPDR ETF (XLV) vs S&P 500

XLV Health Care Select Sector SPDR ETF vs S&P 500 XLV Health Care Select Sector SPDR ETF vs S&P 500 - Photo: TradingView

The S&P 500 Health Care SRHC Index, a basket of 68 S&P 500 component stocks, currently carries a 14.9% weighting within the S&P 500, compared to the all-time-high 16% weighting achieved twice since 1979, according to data maintained by DataTrek Research. Previous highs came at the start of the 2003 post-9/11 rebound and in the early 2009 wake of the subprime mortgage crisis.

Health Care Select Sector SPDR ETF (XLV) price chart

 

Pfizer Inc. (PFE) price chart

Pfizer Inc. (NYSE: PFE) price chartPfizer Inc. (NYSE: PFE) price chart, Feb. 2000-YTD - Photo: TradingView

“So far in 2022, healthcare, as measured by the Health Care Select Sector SPDR ETF (XLV), has lost 9% but it has still outperformed relative to the S&P 500,” said Capital.com analyst Piero Cingari. “During times of uncertainty, the healthcare sector tends to outperform the broad market, since investors choose companies with solid businesses that are not correlated with the economic cycle.”

Pfizer Inc. (NYSE: PFE)

Index weighting ebbs and flows

Since S&P 500 weighting allocations are a zero-sum game, and increases in one sector come at the expense of others, the healthcare sector is DataTrek’s current top defensive strategy, as tech stocks experience earnings multiples compression in a rising interest rate environment, with underperformance being the result.

Gilead Sciences (GILD) price chart

Gilead Sciences (GILD) Feb. 2000-YTDGilead Sciences (GILD) Feb. 2000-YTD - Photo: TradingView

Additionally, “a continued return to ‘pre-pandemic’ life” is expected to shift consumer spending away from tech in favour of other activities, DataTrek co-founder Nick Colas said in a research note Tuesday.

Gilead Sciences Inc. (GILD) price chart

“Healthcare’s time-proven ability to outperform in bear markets makes it our top defensive idea,” Colas said. “As growth investors cycle out of Tech, trading for forward earnings, healthcare’s stable growth and lower multiple offers an attractive alternative.”

Sector picks

Within the healthcare sector, Capital.com’s Cingari prefers pharmaceutical stocks over the biotechnology and health tech sectors.

What is your sentiment on NVS?

83.79
Bullish
or
Bearish
Vote to see Traders sentiment!

Year-to-date, “the industries that have suffered the most are Biotech and Healthtech, as they began the year with extremely high valuation, and the increase in interest rates has impacted the expectations of future cash flows for these firms,” Cingari said. 

Novartis AG (NYSE: NVS)

Novartis AG (NYSE: NVS) Feb. 2000-YTDNovartis AG (NYSE: NVS) Feb. 2000-YTD - Photo: TradingView

Among the pharmaceutical stocks, Cingari likes the more proven names, such as Gilead Sciences (GILD), Novartis AG (NVS) and Pfizer (PFE) for offering relative value amid market uncertainty. “Pharma stocks have excellent dividend yields and valuations that are not overly expensive in this context,” noted Cingari. “They might provide a safe haven against the risks of a US economic slowdown.”

Novartis AG (NYSE: NVS)

Further reading:

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Still looking for a broker you can trust?


Join the 400.000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account

2. Make your first deposit

3. You’re all set. Start trading