Recent Underperformance In Health Care

Thus far, 2019 has been a very strong year for stocks.  Year-to-date, the S&P 500 is up over 15% and international stocks are also up more than 10%.  While this has been a strong market in general, and many of the sectors have participated in the upside, the Health Care sector performance has lagged significantly.  Below is a chart that shows S&P 500 performance by sector year-to-date. *

While Health Care has lagged all year, the weakness in the sector’s stocks has accelerated in the last few weeks.  The below chart, from Bespoke Investment Group, show that Health Care has diverged significantly from nearly all other sectors in the market.  Per Bespoke research, this type of occurrence is rare.  Since the early 1980’s, there have been only 10 other periods where one sector has traded at oversold conditions while all other sectors were overbought.

The primary concern in the Health Care sector has been political rather than fundamental.  Currently, there are a few widely-discussed initiatives that could have negative implications for Health Care companies.  Those include:

  • Medicare For All – a proposal that would cause significant changes to our current health insurance system
  • Drug pricing regulation – it has been suggested that this is one of the few bi-partisan issues which could see legislation that could be passed

Neither of the above initiatives have definitive policy or any clear mandate as of now but Health Care stocks have reacted, nonetheless.  Whether these initiatives ever see full-fledged enactment, and what the ramifications will be for Health Care companies, will have a large influence on their future performance.


To expand on these Market Reflections or to discuss any of our investment portfolios, please do not hesitate to reach out to us at 775-674-2222.

Posted on April 29, 2019 Read More

First Quarter Review

The first quarter was a welcomed turnaround for the financial markets following the fourth quarter setback.  The bull market reignited in late December and caught fire in January.  Momentum waned as the quarter unfolded, but each month produced positive returns for stocks and bonds.  For the three month period, the S&P 500 gained 13.7% and the Barclay’s Aggregate Bond Index netted 2.9%.

The Federal Reserve played a key role in the market reversal as they pivoted to a dovish position on monetary policy.  The year began with the market expecting the Fed to continue to raise the fed funds rate with regularity, but Chairman Powell proclaimed patience was the new path forward.  His statement was interpreted to mean zero interest rate hikes in 2019 and the markets immediately rallied.  The Fed’s new policy perspectives coupled with other encouraging news sent stocks soaring once again.

Fourth quarter earnings season was deemed a success with corporate earnings growing 13.4% making it the fifth consecutive quarter of double digit growth.  Future earnings growth will likely settle into single digit territory.  Employment data was exceptionally strong in December and January, but was offset by a disappointing 20,000 jobs created in February.  March’s employment number will confirm if this was a one-time event or a new trend toward less job creation.  The current 3.8% unemployment rate and growing wages still suggest a strong labor market.  The end of the government shutdown was another bullish catalyst.  A trade deal with China was anticipated all quarter, but now a deal is needed soon to meet market expectations.

The major stock indices had a great start to the year with U.S. stocks outpacing international stocks.  The bull market in U.S. stocks turned ten years old this March, a new historical milestone.   The NASDAQ Composite, S&P 500 and the Dow Jones Industrial Average had sizable gains of 16.8%, 13.7%, and 11.8% respectively in the first quarter.  Evidence of slower economic growth in international economies did not deter stock appreciation in those markets.  The MSCI EAFE and emerging markets indices still produced gains of 10.0% and 9.9% in the quarter.  This has been a traditional rally where growth and small capitalization stocks outperformed value and large capitalization stocks.

With stocks having a tremendous first quarter, one would expect bonds to be on the decline.  This was not the case as interest rates and the shape of the yield were remarkably stable to begin the year.  After the Federal Reserve meeting in March, the bond market rallied hard into quarter end.  The combinations of the Fed’s revised policy leanings, continued low inflation, declining global interest rates, and stable economic growth brought a new optimism to the bond market.  The Barclays Aggregate Bond Index gained 2.9% in the quarter.  High yield bonds, beneficiary of a strong stock market, led all fixed income sectors with a 7.3% quarterly return.  The benchmark 10-Year U.S. Treasury note traded in a tight range, then rallied, declining 28 basis points to end the quarter yielding 2.41%. The yield curve enjoyed a bullish flattening, as long-term interest rates fell more than short-term interest rates.  For the quarter, the 2-Year Treasury fell by 21 basis points to end the period yielding 2.27%.  Meanwhile, the 30-Year Treasury also fell 21 basis points to yield 2.81%.  Most of the yield curve now has interest rates lower than the very short-term fed funds rate currently set at 2.5%.

The financial markets are adept at stirring investor emotions through unexpected price volatility and price momentum.  The past three quarters provided a roller coaster ride from market highs to a double digit correction and back to market highs again.  Hopefully, you let your portfolio ride along while keeping your emotions on the sidelines.  The best approach to long-term investing is to stay invested at a portfolio risk tolerance that reflects both your financial goals and personality.   We are still optimistic on stocks and bonds for the remainder of the year.  After this very successful quarter, do not extrapolate these results through year end.  If stocks can add an additional 5% and if bonds can hold these gains, 2019 will be deemed a successful year for the financial markets.


To expand on these Market Reflections or to discuss any of our investment portfolios, please do not hesitate to reach out to us at 775-674-2222.

Posted on April 11, 2019 Read More

Stock Market Performance by Sector

The market has had a strong beginning to 2019, with the S&P 500 up over 10% year-to-date.  Within sectors of the market, there has been significant divergence of performance.  Below is a chart that reflects relative performance of the 11 sectors against the S&P 500 since the beginning of the year.

  • Technology, Industrials and Energy sectors have outperformed the market
  • Consumer Staples, Health Care, and Utilities have underperformed the market

On the other hand, the sectors that have outperformed in 2019 are significantly different from those that performed well during the downturn from September to December 2018.  The chart below reflects relative sector performance to the S&P 500 during that timeframe:

  • The sectors that have underperformed in 2019 (Consumer Staples, Health Care, and Utilities) were 3 of the 4 best sectors to own during the downturn.
  • The outperforming sectors of 2019 (Technology, Industrials, and Energy) were 3 of the 4 worst performing sectors during the 2018 downturn.

Historically, the sectors that are outperforming in 2019 have been considered more “cyclical” as they tend to benefit from a rising economy.  The sectors underperforming so far in 2019 have been traditionally viewed as “defensive” compared to other segments of the economy.  This trend has been a reversal of sector performance trends seen at the end of 2018.  These types of rotations can happen swiftly and timing these trends can be very difficult to do in practice.

As these two time periods indicate, performance can vary widely within sectors based upon changing investor sentiment.  Even with the traditional “defensive” versus “cyclical” definitions, independent drivers of growth (example: manufacturing activity for industrials, rising interest rates for financials) can create different levels of performance.  While timing sectors can be challenging, it is important to monitor portfolio positioning within sectors to understand the sensitivity to various drivers of market performance.  Lastly, maintaining diversification within sectors creates a risk managed approach that can reduce the overall volatility of the portfolio.

(Performance data from


To expand on these Market Reflections or to discuss any of our investment portfolios, please do not hesitate to reach out to us at 775-674-2222.

Posted on March 22, 2019 Read More
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