HEALTHCARE SPDR HITS NEW RECORD AND IS PLAYING CATCH-UP TO THE REST OF THE MARKET -- AMGEN AND BIOGEN LEAD BIOTECH ISHARES HIGHER -- ABBVIE EXPLODES TO NEW RECORD AND HELPS BOOST PHARMACEUTICAL ETF TO HIGHEST LEVEL IN TWO YEARS
HEALTHCARE SECTOR IS PLAYING CATCH-UP ... Healthcare stocks are off to a good start for the new year, and are one of the market's strongest sectors. That's a big change from the past three years when healthcare was one of the markets weakest laggards. That's another sign that investors are looking for cheaper stocks. The weekly bars in Chart 1 shows the Health Care SPDR (XLV) surging to a new record today. Healthcare is the day's strongest sector. The bigger news, however, is its improving relative performance. The solid line in Chart 2 is a relative strength ratio of the Health Care SPDR (XLV) divided by the S&P 500. That falling relative strength line between 2015 and 2016 showed that sector underperforming the broader market. The ratio bottomed at the start of 2017 and rose through the first three quarters of that year before falling back during the fourth quarter. To the bottom right, however, it can be seen that the ratio has turned back up at the start of this year. That shows that investors are starting to move money back into this relative market laggard. That fits with the theme of investors dealing with a very expensive stock market by starting to move funds into cheaper stocks that have better value. Healthcare certainly qualifies.
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Chart 1
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Chart 2
AMGEN AND BIOGEN LEAD BIOTECH ISHARES HIGHER -- ABBVIE EXPLODES TO NEW RECORD... Rising biotech stocks are contributing to this year's upturn in healthcare. The weekly bars in Chart 3 shows Nasdaq Biotechnology iShares (IBB) still well below its mid-2015 peak but rising to the highest level in more than two years. Its relative strength ratio (solid line) shows it just starting to rise from a very low position. That's good for investors shopping for bargains. My Tuesday message showed the S&P Biotech SPDR (XBI) hitting a new record. I explained that the equal-weighted XBI was being driven higher by smaller biotech stocks being acquired by big pharma companies. By contrast, the IBB is a capitalization-weighted ETF which gives greater weight to larger biotech stocks. Two of the largest are Amgen and Biogen. The weekly bars in Chart 4 show Amgen (AMGN) rising to a new record high today. By contrast, its relative strength ratio (solid line) is just starting to turn up from a very weak position. Chart 5 show Biogen (BIIB) rising to the highest level in two and half years. Its relative strength ratio is also just starting to rise. That shows that investors are starting to buy some of the big biotech stocks that have been market laggards. Today's biggest healthcare gainer is AbbVie (ABBV) which us surging 13% to a new record (Chart 6). That's giving a big boost to a pharmaceutial ETF.
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Chart 3
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Chart 4
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Chart 5
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Chart 6
ABBVIE AND PFIZER LEAD PHARMACEUTIAL ETF HIGHER... Chart 7 show the VanEck Vectors Pharmaceutical ETF (PPH) rising to the highest level in more than two years. There again, its relative strength ratio (lower line) shows how weak this group has been relative to the broader market. That also makes it very cheap. PPH is getting a big boost from AbbVie which is its second biggest holding. The weekly bars in Chart 8 show Pfizer (PFE) also surging into record territory. Its relative strength ratio (solid line) is just starting to bounce from a very low level. That makes that stock a relative bargain as well. There's been a lot of evidence recently of investors rotating into "value" parts of the market that had been largely overlooked. The three biggest groups in the value universe are financials, healthcare, and energy. Financials and energy have been benefiting from rising bond yields and higher oil prices. It looks like investors are now turning to healthcare.
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Chart 7
