U.S. stock fund flows into and out of the healthcare sector have swung wildly from week to week lately, as investors have adjusted their bets over how long the economy will stay strong. Many view healthcare as a defensive sector because it has constant demand and is somewhat insulated from the economy. Down nearly 2% for the year to date, healthcare has badly lagged the gain of over 17% in the S&P 500 index as U.S. economic growth has heated up to what the Atlanta Federal Reserve estimates is a booming 5.9% expansion in the third quarter.
Traders work on the floor of the NYSE in New YorkNEW YORK - U.S. stock fund flows into and out of the healthcare sector have swung wildly from week to week lately, as investors have adjusted their bets over how long the economy will stay strong.
Overall, the healthcare sector - which ranges from health insurers like UnitedHealth to pharmaceutical companies like Pfizer to small biotechs - has received the third largest inflows of any sector year to date, BofA's data showed. Still, the sector [.SPXHC] is down around 2% year-to-date, one of few areas that have not joined the broad market rally, adding to its appeal among bargain hunters.
Healthcare "offers some defense in a period where the lagged impact of Fed tightening is likely to cause economic growth to contract," said Emily Roland, co-chief investment strategist at John Hancock Investment Management, who is bullish on the sector.One potential sign of economic weakness came last Tuesday, when U.S. data showed job openings dropped to the lowest level in nearly 2-1/2 years in July as the labor market gradually slowed.
Dan Lyons, a portfolio manager at Janus Henderson Investors, said the Fed's rate increases will begin to weigh on the economy this fall, making earnings growth estimates for the broad market appear too rosy. He has been buying biotech stocks, expecting them to hold up while other areas of the market wobble.
Overall, healthcare sector earnings are expected to lag this year as COVID-related revenues decline 13% versus a 1.8% rise for the overall S&P 500. For 2024, earnings in the sector are expected to rise 12.8%, slightly better than the 11.8% increase seen for the S&P 500, thanks in part to increased demand for products such as obesity drugs, according to LSEG data.
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