After a challenging year in 2023, the healthcare sector is experiencing a potential comeback in 2024. Even though it is still early days, investors are showing optimism towards the sector’s resurgence. As of January 12, the S&P 500 Health Care sector index has seen a 3% increase, compared to the relatively flat performance of the S&P 500 as a whole.
This positive momentum marks a significant reversal from last year, where the broader market saw a 24% gain while the healthcare sector only experienced a modest 0.3% increase. According to Asad Haider from Goldman Sachs, this is one of the healthcare sector’s strongest starts to the year in three decades. In fact, healthcare funds have seen stronger flows compared to funds tracking any other S&P 500 sector.
Furthermore, the recent major investor conference in San Francisco hosted by J.P. Morgan showcased a more optimistic outlook than the gloomy atmosphere of the previous year. There were even some notable mergers and acquisitions announced during the event.
While investors are enthusiastic about healthcare stocks, they have shown some specific preferences. U.S. pharmaceutical stocks and large-cap biotech stocks have outperformed the S&P 500 thus far in 2024. However, managed-care stocks and contract research companies have not seen the same level of success.
Overall, the healthcare sector’s strong start to the year provides renewed hope for investors and signifies a potential turnaround from the challenges faced in 2023.
Healthcare Investors Shifting Focus in 2024
In an effort to gauge the interests of healthcare investors in 2024, we have analyzed the Health Care Select Sector SPDR Fund. Our methodology consists of screening stocks that underperformed the S&P 500 in 2023 but have shown at least a 6% growth in 2024 as of the close of trading on Jan. 12.
Out of the extensive list, we have identified ten stocks that successfully passed this screening. Notably, two of these stocks only marginally underperformed the S&P 500 in 2023: Regeneron Pharmaceuticals, a distinguished biotech company, and Cencora, formerly known as AmerisourceBergen, a well-established drug distributor. On the other hand, Moderna, the prominent biotech company, experienced a significant decline of approximately 45% throughout last year.
It is worthy to mention that majority of the stocks that cleared this screening process are biotechs, such as Moderna, Regeneron, Amgen, and Gilead Sciences. These companies have seized the opportunity presented by the surging biotech valuations, driven by optimism surrounding a favorable interest-rate environment and a wave of mergers and acquisitions. The SPDR S&P Biotech ETF has impressively surged by approximately 37% since the beginning of November.
In addition to the aforementioned biotechs, other noteworthy companies that successfully passed this screening include the reputable Merck, which achieved a record high on Jan. 10, and Medtronic, a prominent medical device company. Additionally, the managed care company Centene demonstrated promising results.
These findings indicate a revived interest in healthcare investments, with a particular focus on improved sentiment towards biotech. However, the longevity of this reversal remains uncertain and will be closely monitored throughout the year.
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