Macro Meets Micro: What’s Next for Healthcare Stocks – YouTube


After a painful 2016, you might be wondering: What’s next for Healthcare stocks? Healthcare (XLV) was the worst performing sector of 2016. It was also the only S&P 500 sector of nine to finish in the red, down -4.3% for the year.

But things are looking up for Healthcare investors…

By our estimation, the U.S. economy is headed for Quad 1 in our Growth, Inflation, Policy (GIP) model, in which growth is accelerating and inflation is slowing down. That’s a great setup for stocks broadly. “Historically, everything but the Utilities sector goes up in Quad 1,” says Hedgeye Senior Macro analyst Darius Dale in the video above from The Macro Show earlier today.

“It’s been really painful to be short anything” in the Healthcare sector this year, adds Healthcare analyst Andrew Freedman, even for companies that look like juicy shorts from a bottom-up research perspective. Healthcare is up 7.6% so far in 2017, second only to the Technology sector (XLK).

In other words, it’s essential to understand the macro backdrop to properly manage positions in any sector. “That’s where the macro process and risk management can really help,” Freedman says.

A final note: If you’re looking for healthcare exposure that performs well historically when the U.S. economy is heating up, take a look at Biotech stocks (IBB), Dale says. “High beta, momentum and growth stocks are the things that lead the move higher and stocks, so that’s why we like biotech,” he says.

Categories: Economy

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