Norman Tweed's  Instablog

Norman Tweed
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Retiree interested in stocks and financial instruments, especially dividend producing stocks. In the 20th century, I was an electrical engineer with Dominion Resources. I use a dividend growth investment style. Quick rules of thumb for complex questions, like fair value p/e using the Gordon... More
  • Sector Rotation: “Are we in a Sector Rotation into Healthcare?” 6 comments
    Apr 15, 2011 12:50 PM


    Many market pundits believe the market is over valued and ready for a pullback. “Sell in May and Go away” is on their tongues. Seasonally, I believe they are correct. However, this is an opportunity rather than a catastrophe. Sector rotation is basic to the business cycle. This Stock Charts link can be used to follow rotations from January 4, 1999 to the present. Note: When you get to the chart and it says error, drop down to select a PerfChart and select S&P Sector ETFs. the best effects can be obtained by clicking the bar chart button at lower left. If you want to animate the chart, right click on the chart and select “animate”.[SECT]

    As you slide through the cycle, notice how the bars move in a cyclical motion, like an engine. To every sector there is a time of growth and out performance, and then a time of under performance.

    Chart forSPDR S&amp;P 500 (NYSEARCA:<a href='' title='SPDR S&P 500 Trust ETF'>SPY</a>)



    Notice how healthcare sector followed the market into the Great Recession of 2008, but didn't fall as far. Also notice how it got back to neutral in late 2009. At the present point in the cycle, healthcare appears to be on the rise. Why is that? In my opinion, it has to do with healthcare stocks being overly beaten down with the rest of the market, at a time they were making money. P/E ratios for healthcare stocks are hovering around 10, while yields are nearing 5% globally. There is a distinct movement towards high yield stocks, with 10 year treasuries yielding 3.43%. ^HCX is up 7.71% for this year and up 1.1% today, while SPY is up only 5.13% for the year.


    As you play the link above, get a feeling for the rhythm of the cycle. You too may become a healthcare junkie!


    Disclosure:  I am long Healthcare stocks.

    Disclaimer: This article is for informational and educational purposes only and shall not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security.

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Comments (6)
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  • David Fish
    , contributor
    Comments (9344) | Send Message
    Nice take on healthcare and the chart you link to is very informative, once you get it to show up and figure out the sliding bar. I don't tend to focus on sector rotation myself, but I can see that it has value once you study it a bit.
    15 Apr 2011, 03:53 PM Reply Like
  • Norman Tweed
    , contributor
    Comments (7487) | Send Message
    Author’s reply » David -- Do you think embedding this complicated link is worthwhile for the average SA reader?
    15 Apr 2011, 03:56 PM Reply Like
  • David Fish
    , contributor
    Comments (9344) | Send Message
    I think it's a good idea to embed links, an author, I tend to think that a link had better work flawlessly or I'm not going to include it. No sense annoying the reader; you could lose him or her permanently.
    15 Apr 2011, 04:27 PM Reply Like
  • Mathieu Malecot
    , contributor
    Comments (1290) | Send Message
    as an sa reader i can say it is nice to read an idea AND see it. when Chuck Carnevale's graphics finally clicked for me i went from just following the guy to searching stock symbols on his page hoping for a quick visual clue as to whether or not that stock was worth more time.


    as long as the link is relevant it's worth considering, but a consistent format will be much appreciated and lead to more "ah ha!" moments.
    23 Apr 2011, 11:29 PM Reply Like
  • MrPhilologist
    , contributor
    Comments (30) | Send Message
    Thanks for this article. Healthcare has always been a trustworthy sector. I'd like to hear more about your ideas about healthcare companies.
    8 May 2011, 06:02 PM Reply Like
  • Norman Tweed
    , contributor
    Comments (7487) | Send Message
    Author’s reply » MrPhilologist--See my most recent post on AZN.
    9 May 2011, 09:08 AM Reply Like
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