Health Care Sector Rebounds But Lags Market

The S&P 500 and Nasdaq Composite are both in record high territory once again, and the Dow Jones Industrial Average is not far off its own all-time highs. Tech stocks have been surging, as have financial stocks ahead of the critical Fed meeting this week. Even the battered healthcare sector has been on the rebound. It bounced sharply in the past week after having plummeted for much of the first half of April.

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Chart of Health Care Select Sector SPDR ETF (XLV) – Health Care Sector Rebounds but Lags Overall Market – Source: TheTechnicals.com and TradingView

Healthcare Stocks Still Underperforming

Despite the recent sharp rebound, however, the health care sector continues to underperform severely year to date. Since the beginning of 2019, the Health Care Select Sector SPDR ETF (XLV) is up only around 4.3% (as of the market close on Monday, 4/29/2019). Compare that number to the benchmark S&P 500’s +18%.

Potential Healthcare Reform Weighing on Sector

Helping to drive the sector’s most recent tumble in mid-April have been concerns that the Democratic Party challengers in the upcoming 2020 U.S. presidential elections are gaining support for their healthcare plans. Most notable of these challengers is Bernie Sanders. Sanders has continued to push for a complete overhaul of the U.S. health insurance system. This includes a government-run “Medicare-for-All” plan that appears to be gaining momentum. This and other proposals are prompting worries about the possible impact on health insurers and the healthcare sector as a whole.

What May Happen Next for the Healthcare Sector?

The current rebound in XLV is indeed heartening. But any overall market downturn and/or increased calls for far-reaching healthcare reform will likely weigh heavily on the sector. In that event, XLV is likely to fall back towards its April lows. And any further break below could push the ETF back down towards its late December lows.