US healthcare equities were left out of last year’s stock market rally amid a rare earnings recession for the sector. Given accelerating innovation and rising demand from aging populations, we see potential opportunities on offer.
Just two weeks into 2024, the healthcare sector has shrugged off the title of being a notable laggard in 2023. In contrast to the previous year's sluggish 0.3% return (vs 24.2% S&P 500), healthcare now leads the performance chart among all the other sectors year-to-date, boasting a 3.0% return (vs -0.3% S&P 500).
As we noted in our Wealth Outlook 2024, tighter financial conditions, regulatory uncertainties, the glut of inventories post-COVID and investor fear that GLP weight-loss and diabetes drugs will negatively alter demand for other health care modalities have been the culprits behind a rare healthcare earnings recession.
Our view is that the new generation of GLP-1 drugs are not substitutes for other treatments and procedures but are likely to function as a complement that will help drive better health outcomes and market performance for selected shares.