The last two calendar years were staggeringly good for investors...
In 2023 and 2024, the S&P 500 Index soared a combined 58%. Tech stocks surged 90%. And even gold managed a 45% rally.
Still, if you think everything worked in those two years, you'd be wrong. In fact, one major sector managed to barely make money at all...
This group of stocks rallied just 5% in 2023 and 2024. And due to that poor performance, investors are fleeing this space.
Unfortunately, they're selling just as this group is beginning to outperform. And because of this hated sentiment, that's a trend that can continue...
Investor behavior is easy to understand. Folks want to own what's making them money... And they want to sell everything else.
Given that, it's no wonder that folks are selling the sector we're looking at today. It was essentially dead money in two of the best years in investing history.
The sector we're talking about is health care. And you can see its massive underperformance in the chart below...
Who would want to own health care stocks after a stretch like this?
We have the answer... no one. That's why investors have been selling health care stocks in droves. We can see it by looking at the shares outstanding of the largest health care exchange-traded fund ("ETF") – the Health Care Select Sector SPDR Fund (XLV).
You see, ETF share counts move around based on investor demand. So when everyone wants to own health care stocks, XLV will create more shares to meet demand. Similarly, if no one wants to own them, XLV will liquidate shares.
That means the overall share count is a good gauge of investor interest. And right now, no one's interested in this sector. Take a look...
XLV shares outstanding peaked in mid-2023. They've languished since...
The total decline stands at 17% since the 2023 peak. And overall, shares outstanding are currently hitting a multiyear low.
This is a clear sign that investors have given up on health care stocks. Unfortunately, they're doing it at the wrong time...
You see, this sector has just begun its recovery in recent weeks. XLV is up 8% since bottoming in December. And it's handily outperforming the overall market over that period, too.
Given how hated the sector is today, this may be the early stages of a major performance reversal. And that makes health care stocks a group to consider owning right now.
Good investing,
Brett Eversole
Further Reading
"The energy sector has been stuck in a rut for years," Joel Litman writes. Energy valuations remain near historic lows. But President Donald Trump's policies are set to transform the industry. And that means this hated sentiment could lead to big gains... Learn more here.
The new blockbuster treatments for diabetes and weight loss have been a major headwind for a surprising group of companies... alcoholic-beverage makers. But according to one metric, that's starting to change. And these beverage companies could be at the start of an uptrend... Read more here.
