Charts turn bullish on health-care stocks as sector takes early lead in 2024

By Joseph Adinolfi

The health-care sector is the best performer so far this year after lagging in 2023

Health-care stocks are off to a strong start in 2024, and Wall Street analysts are taking notice.

Chart-watchers are growing increasingly bullish on health-care stocks now that they have become the best-performing sector of the S&P 500 so far in 2024, according to Dow Jones Market Data. Analysts have cited attractive valuations relative to earnings and a compelling growth story as two reasons health-care stocks might continue to outperform.

Eli Lilly (LLY) remains the sector's best performer after rising 78.1% in 2023, earning the drugmaker a spot among the 10 most valuable companies in the S&P 500.

Lilly's success has been driven in part by Zepbound, its competitor to Novo Nordisk's Ozempic and Wegovy. The firm's CEO says weekly prescriptions for the drug have already reached 25,000, according to a Reuters report.

But other health-care names are pulling ahead, including health insurers like UnitedHealth Group Inc. (UNH), pharmaceutical giants like AbbVie Inc. (ABBV) and Viatris Inc., (VTRS) medical-device makers like Dexcom. Inc., (DXCM) and Danaher Corp. (DHR) and distributors like McKesson Corp. (MCK)

Several of these stocks recently experienced a "golden cross," where the 50-day moving average of a stock or index crosses above its 200-day moving average, according to Renaissance Macro's Jeff DeGraaf. Technical analysts interpret it as a bullish indicator.

"There are several health care names exhibiting golden crosses, and we continue to believe the prospects for the sector are attractive for 2024," he said in emailed commentary.

The entire sector saw a golden cross during the first week of January, FactSet data show, the latest milestone in what has been a multi-month rally.

Since hitting their 52-week low on Oct. 27, health-care stocks have risen more than 14%, according to Dow Jones Market Data. Friday marked the ninth-straight weekly gain for the sector, the longest stretch of weekly gains since an 11-week streak that ended in December 2019.

Late last year, a handful of analysts including BTIG's Jonathan Krinsky said health-care stocks were looking cheap. At the time, the sector was trading at a price-to-earnings ratio of about 18. The sector finished 2023 with only marginal gains, FactSet data show.

Now, health-care stocks are Krinsky's "highest-conviction idea."

Since the start of 2024, the health-care sector has risen 3%, an order of magnitude better than its 0.3% gain for all of 2023, FactSet data show. By comparison, the S&P 500 SPX rose 24.3%.

Furthermore, Krinsky believes this might be only the beginning. The SPDR Health Care Select Sector ETF XLV , an ETF that tracks the sector, looks poised to climb even higher, he said, and could soon take out its record from April 2022, when the ETF closed at $142.83 on April 8, Dow Jones data show.

At the very least, the sector has seen a "good start" to 2024. In fact, it is off to its best start to a year since 2018, when health-care stocks started the year with a 5% gain, Dow Jones data show.

-Joseph Adinolfi

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01-16-24 1129ET

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