ETF Insights| December 1, 2024 | Healthcare Sector
Price Action & Performance
Healthcare equities ended November on a positive note, despite significant underperformance earlier in the month. The XLV (Healthcare Select Sector SPDR Fund) climbed higher for seven consecutive sessions to close November, buoyed by gains in biopharma, MedTech, services, and managed care. The XBI (SPDR S&P Biotech ETF) also saw a resurgence, gaining 2.67% in November and finishing higher in eight of the last nine trading days. However, on a year-to-date basis, healthcare remains the weakest-performing sector, up only 7.76%, compared to the S&P 500’s 26.47% gain.
Biotech was a standout during the past week, driven by notable developments in the sector. Roche announced the acquisition of Poseida Therapeutics for up to $1.5 billion, sparking rallies in other CAR-T and gene therapy companies like CABA (+104.3%) and FATE (+38.4%). Arrowhead Pharmaceuticals surged 40.4% after securing a licensing agreement with Sarepta Therapeutics, which also announced a share buyback program and strategic investment. Meanwhile, Exact Sciences rose 17.3% on the Medicare pricing announcement for its Cologuard Plus test.
Pharma saw mixed results. Amgen declined 4.0%, the worst performer in the XLV, following trial results for its obesity drug candidate, MariTide, which drew criticism for its lack of differentiation despite promising weight-loss data. On the other hand, Eli Lilly gained 6.3% in sympathy with broader obesity-related developments. The FDA’s approval of BridgeBio Pharma’s drug, Attruby, for transthyretin amyloid cardiomyopathy (ATTR-CM) provided a positive catalyst for BBIO (+15.7%).
MedTech also delivered strong results, with Dexcom (+7.1%) leading the XLV. Guardant Health (+9.1%) benefited from a favorable jury verdict against Natera, while managed care players like Teladoc (+12.8%) continued their momentum following recent gains.
The sector’s challenges were underscored by significant declines in some high-profile names. Alzheimer’s disease remains a challenging space, with setbacks for Cassava Sciences (-85.5%) and Alector (-34.3%) following disappointing trial results. Applied Therapeutics (-78.9%) plunged after receiving a complete response letter (CRL) from the FDA for its drug, govorestat. Outlook Therapeutics (-59.2%) also faced headwinds due to poor trial results in wet age-related macular degeneration (AMD).
Unsurprisingly, the longer-term correction in prices at the sector level has been accompanied by deteriorating stock level technicals. Every industry within the sector has underperformed by between 3% and 16% vs. the S&P 500 over the past 3-months. Our list of buy-rated stocks within the sector continues to shrink. We consider ISRG and BSX the best stocks to own in the sector. We remain constructive on ABBV, SYK, RMD, MCK, CAH, COR and DVA. We note potential bullish reversals in PODD, GILD, BMY and WAT, but in the context of the sector, these positive developments are few and far between.
Economic and Policy Drivers
The healthcare sector outperformed during the holiday-shortened week, with the S&P 500 Healthcare Index rising 2.09%, compared to the broader S&P 500’s 1.06% gain. Policy developments were at the forefront, highlighted by the Centers for Medicare and Medicaid Services (CMS) proposing coverage for anti-obesity medications (AOMs) under Medicare and Medicaid. While this policy’s implementation remains uncertain, pending the incoming administration’s stance, it signals a growing emphasis on addressing obesity-related healthcare costs. Additionally, CMS announced a moderate price increase for Exact Sciences’ Cologuard Plus, providing a tailwind for the company’s shares.
Key nominations for the incoming administration added further intrigue. Dr. Martin Makary, an executive at telehealth company Sesame, was nominated to lead the FDA, signaling potential shifts toward healthcare innovation. Jim O’Neill was named Deputy Secretary of HHS, reigniting debates over drug approval policies due to his past advocacy for safety-first regulatory frameworks. These nominations, combined with other policy signals, have sparked both optimism and scrutiny over the direction of healthcare regulation.
In Conclusion
We enter December with Healthcare as one of our three zero-weight sectors. There are no positive price or performance trends at the sector or industry level that register as buyable in our sector selection process. The bounce in the last week of November is welcome, but it falls short of positive trend change. Our Elev8 Sector Model is UNDERWEIGHT the Healthcare sector with a -10.4% allocation vs. our benchmark S&P 500
Chart | XLV Technicals
- XLV 12-month, daily price (200-day m.a. | Relative to S&P 500 | MACD | RSI)
- Current rally still not significant enough to change the pattern.
- Overbought in a downtrend, needs a move above $151 to show technical improvement
XLV Relative Performance | XLV Industry Level Relative Performance | 3m
Data sourced from FactSet Research Systems Inc.
