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• Healthcare stocks continue to lag the market up about 6% YTD, helped by Large Cap Biopharma but hurt by United Health.
• It was a difficult year not only for Healthcare Providers (IHF) down 2% but also substandard for MedTech (IHI) up only 3.43%.
• SMID Life Science stocks are usually the focus of growth and innovation but now investors favor large caps. M&A to pick up?

You don’t have to be a market guru to know which stocks are leading the market higher. What you may not know is that the top five stocks account for about 55% of the total return in the S&P 500 in 2024. You know one of them, NVDA, but you could still do well by holding a few of the other top performers like AAPL, AMZN, META, and of course MSFT one of the original technology heavies from the last era of 2001 bull market. But miss just one biopharma stock, Eli Lilly and Co. (LLY) and your healthcare portfolio was a big loser because LLY is up 56.89% YTD and 96.39% over one year. Of course, you could still do well with healthcare if you owned other top-performing large caps like ABBV, MRK, REGN, and VRTX that have done well over the past five years due to blockbuster drugs. But since the last biotech bubble of 2020-21, most other life science funds and ETFs have underperformed. And to make matters worse the ballast for many healthcare portfolios has been the providers mainly United Health (UNH) down 7.31 % YTD.

SECTOR PERFORMANCE-Q2 Earnings will be Key
 

Healthcare stocks comprise only about 12% of the S&P 500 while Technology is 33% of the S&P 500, which is up over 16% YTD. The leading SECTOR SPDR ETFs YTD are Technology, Communication Services, and Utilities. Healthcare is near the bottom up only about 6% YTD. Some market strategists believe that if technology stocks falter or trend down then energy and healthcare sectors will be favored.

One can view general economic trends through sector performance and healthcare was a defensive sector relatively safe from volatility. But with the explosive data demands of AI semiconductors and computers are entering a new generation of growth. This has also propelled social media stocks like META to unimaginable heights and valuations. In a digital world, data becomes currency and ever more powerful chips provide the intelligence.

LookIng Forward to Future Breakthroughs?
 

So what can AI do for healthcare? For starters, there are terabytes of data within the healthcare system that can be analyzed to reduce costs and improve treatments. We have also read about the potential of using AI for drug discovery to improve molecular targeting antibodies and protein folding. Breakthroughs in cancer treatment have come from immuno-oncology drugs and immunotherapy The class of molecules used in obesity drugs, Semaglutides, or GLP-1 receptor agonists did not exist 7 years ago so who knows what blockbusters are coming next? Gene therapy has approved products and cellular therapy is gaining patients. Another huge disease opportunity is neurodegenerative diseases such as Alzheimer's and Parkinson's and there are currently drugs in the late stages of clinical development.  And infectious diseases always present a pandemic risk as we saw just a few years ago.

On the negative side, the IRA (Inflation Reduction Act) proposes to reduce healthcare costs by penalizing companies with high drug prices. Penalties have been suggested such as restrictions on patents. There are many challenges and opportunities with this law as well as political unrest should Republicans gain more power. Look for an impact on selected companies in Q4 2024.

Portfolio notes: ADDED GILD, PFE long is now in the money. Trading XBI for an SMID rally.

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