What’s Up With the Health Care Sector – Investors Fleeing Defensive Sectors ?

The Health Care sector rally that started with President-elect Trump’s victory on November 8th, and the defeat of Proposition 61 in California, has fizzled out before the Financial and “return-to-global-growth” rally within other sectors like Basic Materials, etc.

Given the surprise announcement around Eli-Lilly and their Alzheimer’s drug on Wednesday, sending the stock down $10, I thought readers would want to be updated on Health Care sector earnings for Q4 ’16 and 2017:

Q4 ’16 expected Health Care sector earnings growth

  • 11/25/16:  +5.7%
  • 11/23/16: +5.9%
  • 11/18/16: +5.9%
  • 11/11/16: +5.9%
  • 11/4/16: +6.4%
  • 10/28/16: +8.1%
  • 10/21/16: +8.1%
  • 10/14/16: +8.3%
  • 10/7/16: +8.4%
  • 9/30/16: +8.3%

This is a pretty normal downward revision pattern for a coming quarter for Health Care.

2017 expected Health Care sector earnings growth: 

  • 11/25/16: +8.6%
  • 10/1/16: +10.1%

Analysis / conclusion: The health care sector has been written about previously, here and here. Our positions havent changed with a sector underweight, and the largest single position being Pfizer (PFE), which looks due for a bounce, Biotech is technically in good shape, but stopped rallying a few days after the election.

Health Care could become a victim of the “relative value” or “relative earnings growth” syndome: as one sector that has been a leader in the weaker, low-return markets of the last few years, it could be that investors are rotating out of Health Care into sectors like Financial’s and Basic Materials, as these sectors will benefit directly from specific growth initiatives of the new President and Administration.

The fact is Health Care has more defensive characteristics, and with a full-on economic growth agenda being planned, that consistent, stable earnings growth may not be as valued as it was in a no-growth environment.

The IBB (biotech ETF) remains technically intact while the IHE looks to be in better shape than the PPH, although the PPH ETF will be given more time. A heavy-volume trade through, and close below $50 and the PPH would likely sold.

Readers will be updated again near year-end 2016.



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