(Bloomberg) — Investors rushing to snap up safe bets with reliable revenue streams amid global volatility propelled health-care stocks to all-time highs this week.
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Drugmakers AbbVie Inc., Pfizer Inc. and Eli Lilly & Co. as well as the largest U.S. health insurer, UnitedHealth Group Inc., all gained more than 6% over the past five days. With the exception of Pfizer, they also reached record highs, though valuations still trail the broader market.
“The defensive aspects of the sector, while not fully appreciated at times over the past few years, is beginning to kick-in in a rather meaningful way,” said Jared Holz, a health-care strategist at Oppenheimer & Co.
Other havens where demand is likely to remain steady regardless of the economic conditions, such as utilities, have performed similarly.
Amid the current macro and geopolitical turmoil, the reliability of the nation’s largest drug makers, drug distributors, labs and health insurers have helped the stocks outperform every other sector this week. The S&P 500 Health Care Index is up 3.4% over the last five sessions compared with a 1.3% decline in the overall S&P 500 Index, and it has gained about 12% in the past 30 days while the S&P has advanced roughly 8%.
ETF investors are betting on drug industry returns, sending the closely watched $39 billion Health Care Select Sector SPDR Fund, or XLV, to new highs on two days this week. That’s after a record amount of cash flowed into the fund in the first quarter.
The XLV’s record highs amid a potential breakout from trading ranges dating back to June 2021 suggest momentum could keep propelling the sector forward.
And after underperforming for nearly two years, health stocks in the S&P 500 have recouped nearly half their slide against the benchmark gauge in roughly three months.
The recent rebound, at least among drugmakers, is likely to continue according to a technical analysis from Bloomberg Intelligence strategist Anthony Feld.
Bank strategists have also been upbeat on health care, as long as the uncertainties in the market remain. Utility and health-care stocks ranked better than others in terms of valuation, fundamentals, margins, supply chains, pricing power and Russia/Ukraine exposure, Lori Calvasina, RBC Capital Market’s head of U.S. equity strategy, said last week.
JPMorgan Chase & Co. strategists led by Marko Kolanovic also affirmed their overweight rating on health care stocks, saying the sector “offers defensive growth, high margins and pricing power, and attractive shareholder yield at a reasonable valuation.”
(Updates with closing prices.)
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