FANG “Peels Off” And The S&P Has A Surprising New Leader

Ironman training is back in full swing.

Seven days a week I devote time to either swimming, biking or running in preparation for my next race in Ireland.

Earlier this week, I was training with a group of other athletes on a long bike ride. During training sessions like this, we work together by “drafting” on the person in front. This enables us to conserve energy while also picking up valuable speed — it’s a win-win scenario.

Here’s how it works…

One rider takes the front and does all of the hard work. This rider is pedaling hard and pushing into the wind for the rest of the group. The other cyclists tuck in behind this front rider so they don’t have to work as hard because they’re more aerodynamic behind the first guy who is breaking the wind.

After pushing hard for a few minutes, the first rider will peel off and head to the back of the line.

Now the second rider is in front. But he or she is well rested because of the extra aerodynamics, so they now have enough energy to push hard to help the whole group move faster.

During this exercise, I couldn’t help but think how this training method is similar to today’s market climate, which is an important insight for any investor in today’s market…

Just like one biker taking the lead to allow the entire group to pick up speed, one sector in the stock market frequently takes the lead which paves the way for the bull market to continue!

For example, in the second half of 2017, the market was helped along by some very strong action in oil stocks. As oil prices rebounded while demand continued to surge, the entire energy sector rose to price in these increasing profit margins for drillers.

And then when oil prices began to stall, some of the most popular stocks like Facebook, Amazon, and Netflix took center stage and once again and gave investors some excellent profit opportunities. These stocks were definitely the leaders in the first half of 2018.

But now the market is in need of another leader.

The FANGs are coming off disappointing earnings reports and growing fears of excessively high valuations. This caused popular stocks like Facebook and Netflix to fall double-digits after reporting earnings and Amazon to stall once reaching the historic $1 trillion valuation mark.

So who will be the next market leader to emerge?

The healthcare sector!

That’s right. Today, we’re seeing healthcare stocks move up to the front of the pack to carry this bull market forward.

Healthcare stocks have been outpacing the rest of the market since midway through July, putting the sector in the number one slot for the best-performing S&P 500 sector this quarter. This is mostly due to fantastic earnings and guidance figures these companies are announcing as the baby boomers hit retirement age.

And the best thing is, we’re now seeing institutional money managers starting to take big stakes in this sector.

As they buy their shares over the next few weeks and months, naturally the higher demand will send stocks higher. I expect this trend to continue for several more months. Some of the best names in this group include Merck (MRK), UnitedHealth Group (UNH) and ABIOMED (ABMD).

These are some of the large cap names that are currently catching a lot of attention. All of these companies have had stellar 2018 performances and two of them, Merck and UnitedHealth, pay an excellent dividend to sweeten the deal.

That’s all from me today. Stick with The Daily Edge as we continue digging deeper into the healthcare sector. And whenever another sector decides to take the lead, as always, you’ll be the first to know.

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
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