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Healthcare Stocks May Save Your Portfolio

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Apple (AAPL) stocks have declined by more than 20 percent this year. Concerns about sluggish profit growth and a faltering economy have severely impacted the FAANGs (Facebook -now Meta, Apple, Amazon, & Google) of Big Tech and other momentum stocks. In this dismal market for the Nasdaq and S&P 500, however, numerous blue-chip healthcare firms have shown substantial gains.

Merck (MRK) and biotechnology leader Amgen (AMGN) are among Dow’s best performers. McKesson (MCK), Vertex (VRTX), Eli Lilly (LLY), and Cigna (CI) are S&P 500 winners as well. Bristol-Myers Squibb (BMY), Eli Lilly (LLY), and Humana (HUM) are all near record highs.

Notably, these are not the large Covid vaccination supplies either. Pfizer (PFE), BioNTech (BNTX), Moderna (MRNA), and Novavax (NVAX) have all decelerated in 2022 after seeing significant price increases in 2021. Gilead (GILD) and Regeneron (REGN) are also in the red this year as antiviral medicine manufacturers.

The present economic cycle is more influential than the epidemic in driving the big rise of other healthcare firms. During turbulent times, health care equities frequently perform well. Even during a recession, they are viewed as reliable enterprises that deliver products and services that consumers require.

In addition, a number of market leaders in the healthcare industry provide substantial dividends and are relatively inexpensive relative to the rest of the market.
In a recent analysis, UBS Global Wealth Management’s chief investment officer for the Americas, Solita Marcelli, stated that healthcare is trading at an appealing valuation for a late-cycle environment.

Since 2003, she said, global healthcare companies have tended to outperform the overall market by more than 6% when the manufacturing sector is in decline. (The May reading of the ISM Manufacturing Index was the second-lowest since May 2020.)

An economist and portfolio strategist at New York Life Investments, Lauren Goodwin, noted in a study that “as long as economic growth remains in flux,” investors should continue with quality equities with a “defensive bent.” In addition to healthcare, she mentioned utilities and real estate as two more sectors noted for their high payouts.

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An increase in mergers could also benefit the healthcare industry. This year, Pfizer, Bristol-Myers Squibb, and GSK (previously Glaxo Smith Kline) announced multi-billion-dollar agreements.

There are inherent hazards. Depending on the outcome of the midterm elections, regulators and legislators may scrutinize healthcare corporations more closely. If Republicans win control of the House and Senate, the future of the Affordable Care Act (Obamacare) and its impact on prescription pricing could be called into question.

However, as long as the Federal Reserve continues to rapidly raise interest rates and investors remain concerned about inflation, healthcare stocks may continue to do well regardless of what occurs on Capitol Hill.

The stock market has experienced a flight to quality, according to Edward Campbell, co-head of the multi-asset team at PGIM Quantitative Solutions. “I’m not surprised to see more classically defensive sectors like healthcare continue to do well.”

Fears of a recession are mounting as a result of rate hikes, soaring oil and gas prices, and housing market problems. However, one of the most vital aspects of the US economy, the job market, remains robust.

In the middle of the Great Resignation, workers are in the proverbial driver’s seat, commanding substantial compensation as firms struggle to hire staff. But could the job market be about to take a turn for the worse as well?

Friday, the government releases June payroll data. The statistics will conclude a week filled with employment-related headlines, including weekly unemployment figures, monthly reports from payroll processor ADP regarding private-sector jobs, and the government’s job openings and labor turnover (JOLTS) survey.

Economists predict that 295,000 new jobs were created in June. This is still a strong number, although it is lower than the 390,000 jobs added in May and the revised increase of 436,000 jobs in April.

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The unemployment rate is projected to remain stable at 3.6%, but it is likely to gradually begin to rise. According to forecasts made at the Fed’s most recent meeting earlier this month, members of the central bank anticipate that the unemployment rate would end this year at 3.7%, rise to 3.9% in 2023 and reach 4.1% in 2024.

Obviously, this is still historically low. As pay growth begins to stall, though, there are concerns that American workers won’t be able to keep up with soaring inflation. The average hourly wage increased by 5.2% year-over-year in May, down from 5.5% in April.

Economists, investors, and job searchers will closely monitor the June data to determine if wage growth has deteriorated further.

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