Healthcare Sector Is At An Important Juncture

1.) HEALTHCARE – Last week, I mentioned that it was looking like we could start to see more rotation into healthcare. And last week, Thursday, the Healthcare ETF – XLV, was up 2.3% to close at the highest level in its history. That’s interesting because healthcare hasn’t exactly been everybody’s favorite place to invest. For years, it’s been one of the market’s biggest laggards while investors piled into technology, AI, semiconductors, and anything else with a growth story attached to it. Markets tend to change the conversation before headlines do. That’s what we may be starting to see. The last time healthcare looked like this was about 25 years ago. What’s interesting now is that everyone is looking for the next AI company. The market may already be telling us that one of the biggest AI stories isn’t a technology company at all… maybe it’s healthcare. Healthcare has been quietly getting stronger beneath the surface. Biotech has been making 5-year highs, and healthcare services have been breaking out. Meanwhile, short interest remains elevated across many of these stocks, telling us plenty of investors still don’t believe the move. And you know what happens when short sellers have to “cover” (buy). Healthcare relative to the S&P 500 is sitting at the exact same level where healthcare began its last secular period of outperformance 25 years ago. Does that mean it has to repeat? No… but these things do tend to rhyme.

2.) SENTIMENT – “Wall Street climbs a wall of worry.” That’s an old adage, but it has always rung true. The latest AAII Sentiment Survey data continues to support a reasonably healthy market, as do household worries over finances. According to the New York Fed, those household financial worries hit the highest level since July 2022. The AAII data shows that the share of bullish responses dropped by the most in nearly 5 years (bottom right), pushing the bull-bear spread back into negative territory.

3.) GOLD – Gold is still signaling lower highs and lower lows. A counter-trend rally is looking less probable as the US Dollar bounces off support, and gold currently has the largest inverse correlation with the US Dollar. That just means that if the Dollar continues to strengthen, it will be a strong headwind against gold moving significantly higher. If gold gets a small counter-trend rally, $1,330 will be an important area to clear. If it can, then $1,475 would likely be in play. There’s a lot of work gold would have to do to get there, which likely takes time. The bottom line for gold buyers is that they need patience. Gold is not trading well and is not likely to explode higher from here, especially as rate hike estimates are falling as inflationary pressures ease.