CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

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

By Kevin Donovan

10:00, 25 May 2022

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.”

What is your sentiment on XLV?

147.13
Bullish
or
Bearish
Vote to see Traders sentiment!

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.

TSLA

182.45 Price
-0.320% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 0.35

GME

23.54 Price
-2.260% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 0.15

SPCE

8.98 Price
-7.280% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 0.1900

NVDA

116.67 Price
-8.220% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 0.16

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.

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)

Markets in this article

GILD
Gilead Sciences Inc (Extended Hours)
71.10 USD
0.13 +0.180%
XLV
Health Care Select Sector SPDR Fund
147.13 USD
0.22 +0.150%
XLV
Health Care Select Sector SPDR Fund
147.13 USD
0.22 +0.150%
NVS
Novartis ADR
107.03 USD
1.77 +1.680%
PFE
Pfizer Inc (Extended Hours)
28.47 USD
0.55 +1.990%

Rate this article

Related 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 in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that Capital.com believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

Still looking for a broker you can trust?

Join the 620,000+ 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