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The holiday spirit hit the markets last week. Definitely a bull and not a turkey. S&P 500 did its part up +2.35% but was outscored by most other indexes.
As has been the case recently small cap stocks won the index week with S&P Small Cap 600 (IJR) at +3.83% and hitting a new all-time high, finally exceeding the August 2018 high. And to continue the broadening of the market story, RSP (equal weight S&P 500 index) outperformed SPY over one month with RSP +12.76% and SPY +7.52%.
Over the month of November there is a healthy, bullish pattern that is now persisting in time. There are multiple likely potential contributors to this outcome:
Overall, the economic indicators are none too rosy short term as the pandemic rages and does its damage. The market moves are not closely correlated with much of anything actual. The rationalizations and logic are tortured at best. That means we remain primarily in a momentum market. The broadening of market participation continues. As we traverse the pandemic we recalibrate in new areas based on future hopes and projection of best-case scenarios.
For an up-to-date analysis, see this week’s Healthcare Segment Scorecard below.
The healthcare sector ETF (XLV) continues to underperform the broader market S&P 500 (SPY) in all time frames. The dynamics within the sector show supplies (DJUSMS) outperformed in nearly all timeframes, while equipment (DJUSAM) is a good example of early year outperformance and then losing steam. Everything else is middling except big pharma (DJUSPR) which is a true laggard.
We continue to be interested in the groupings found in other ETF’s like XBI (biotech) that gained +4.30% last week and is +38.4% YTD vs. 12.6% for DJUSBT. A similar dynamic is found in XHE (medical devices).
It begs the question about the nature of the healthcare market. The member companies comprise the second largest portion of the S&P 500. It is an incredibly diverse group of industries. Depending on your investment objectives you can find blazing growth or slow at-market performance with high dividend yields. Sometimes they are called defensive stocks and sometimes growth and sometimes value. Throw away this sort of classification. It’s not helpful.
Healthcare per se functions in a highly regulated government utility model with a fringe of big money entrepreneurism. Do we have a healthcare system in the US? If we did, we would have a system designed to deliver health. We don’t have that.
To understand healthcare it must be considered a political system first. And whether you like the terminology or not, it is by nature a redistributive system, as not everyone consumes the same amount of healthcare in a year. The fundamental flaws in our ability to deliver health derive from our unique and bizarre system of payments. This underlying nature of the beast also impacts the dynamics seen in the healthcare equites.
As I See It: Although it is difficult to make very strong conclusions on a holiday week the market remains very bullish and became more so last week. The healthcare sector has been mildly correcting for a while and underperforming the broader market. Technicals suggest this may change soon. Stay tuned.
November 30, 2020
Bob Teague, MD
Chief Medical Officer
Green Room Technologies
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