Healthcare has not been good for your welfare

Stocks rise, oil falls as a nervous truce is reached between Israel and Iran, after America’s weekend bombing of Iran’s nuclear sites. Iran responded modestly, launching missiles at a U.S. military base in Qatar on Monday in retaliation for the U.S. strike, notifying the US in advance. As a result, President Trump thanked them, as they were able to avoid casualties.

As we approach the end of the first half of the year, there has been a significant rally in stocks from the lows of mid-April. The S&P 500 is again reaching new highs, yet the economic background remains mixed. The Citi Economic Surprise Index has been declining since mid-2023. The Conference Board Leading Economic Index for the United States has also fallen since late 2021, despite this, corporate earnings increased by an average of 10% per year over the past four years, mainly driven, as we know, by the technology sector, which is, of course, why has much to do with the market is so much higher overall. One sector that remains deeply out of favour, despite resilient earnings growth over the past four years, is the healthcare sector. Here, earnings have grown by around 8% per year, which is just below the average for the entire index. However, the sector has been almost flat over the past three years, lagging behind a market that has risen by approximately 50%. That seems a bit harsh, resulting in a serious de-rating of the sector.

We will once again enter earnings season, which will impact investor sentiment, one way or another. One would think the upcoming season will once again need to be pretty good, particularly in the US, to sustain these valuations. There is a sense coming from some of the speeches currently being made by Fed members that appears more dovish in tone. Will they take the plunge in July, hoping inflation will come back naturally and the tariff impact will be minimal? Today, Powell testified before the House Financial Services Committee and tomorrow before the Senate Banking Committee. My sense the real swing factor for markets in the coming weeks will be how Trump deals with the upcoming expiry of his 90 day truce on tariffs which comes to an end at the start of July