We just had  one of the best first quarters in recent market history since Q1 in 2019 when the market was up 13%. But changes In sector performance may be coming. The S&P 500 was up 10% beating the QQQ and XLK showing a slight trend toward a more balanced market performance. 

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The energy sector (XLE) led the market over the past week up 2.18% while the technology sector (XLK) lost 0.79%. Healthcare stocks are coming back with the XLV up 1.44 % for the week, 3.2% and 8.3% YTD. Technology stocks including chips ( iShares Semiconductor index  SOXX up17.65% YTD and 60.9% over one year!) have been the big story over the past year but expect a more diversified market performance for the balance of 2024.

• XLV at $147.73, IBB at $137.22, XBI at $94.89, S&P 500 at 5254.35

Healthcare stocks were led by large cap biopharmaceuticals, LLY, ABBV, MRK and REGN all among our top picks. MedTech also came back in Q1 as you can see the IHI was up 8.56% YTD and the Fidelity Select Medical Device Fund (FSMEX) was up 9.05% with companies like BSX, SYK and GEHC returning to growth.

UnitedHealth (UNH) carried the healthcare sector for several years (up 104% over 5yrs) due to demographics  ad growth but recently has taken a financial hit because of a hack in their division Change Healthcare.  But many analysts still rate the stock an outperform and believe there is minimal long term impact from the disruption. The stock is down 6% YTD and is up only 4.68% over one year. Look for how they handle cost pressures in their Medicare Advantage Program as well.

But Biotechnology Stocks Have Trailed the Market Since They Peaked in August of 2021

We have previously written about the biotech bubble during the pandemic period in ‘2020-‘2022 when vaccines, diagnostic tests and anti-viral therapies were booming. The diagnostics and vaccines stocks may have bottomed but sales growth is tepid. Look for a return to growth with stocks like DHR and TMO, especially if M&A picks up.

But should the nascent bull market continue for biotechnology in 2024-25 we will need to get it from small caps as tracked by the XBI. Innovation from new products comes from smaller companies which in a growth cycle creates more M&A.

Takeaways and Assumptions for Sector

1. Should volatility return to market healthcare would be least affected.
2. Large cap biopharmas are strong holds but see update after Q1 earnings.
3. MedTech and US medical devices sector are favored for new buys.
4. Look for potential R&D breakthroughs in neurodegenerative diseases.
5. Small caps and SMID are still underperforming but improving with IWM up 4.78%, IJR up 2.1% YTD.
6. Speculative fervor with momentum and “story” stocks still exists though waning. (see our trading list).
7. Pfizer (PFE) is our contrarian play, down 3.61% YTD with a 6% royalty and a near term upside to $30.

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