The Divergence of Staples and Healthcare

This is a subtle but important point I want to make. The relative performance of Healthcare stocks and Consumer Staples stocks tends to be mildly related. Over the last 15 months or so, that relationship seems to have broken down.

A picture may tell the story. Here’s a 25-year look at the Consumer Staples sector divided by the S&P 500 (red), and the Healthcare sector divided by the S&P 500 (black).

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Both sectors are traditionally defensive sectors. As such, see how both lines tend to rise when the market crumbles, and then fall as the market rallies. That’s what defense is all about.

By related, I don’t mean that the two lines track each other over the long-term. Instead, I mean that the near-term nooks and crannies, peaks and valleys tend to match up pretty well (study them closely and you’ll see what I mean). If you look at daily performance of the stocks in the S&P 100, you’ll notice that the Healthcare and Staples names are often close together.

Over the longer term, however, there are clear multi-year trends. For example, Healthcare beat Staples from 1993 to 2000 (black beat red). But over the next eight years, Staples took the lead (see how red closed the gap). In this decade so far, Healthcare has stood on top.

Here’s my larger point. Since the spring of 2013, the lines aren’t matching up at all. In fact, there seems to be some negative correlation, and I don’t know why. Obviously, the effect of the Affordable Care Act could be playing a role. Perhaps the market no longer sees Healthcare as a defensive sector. Conversely, maybe it’s that Staples have changed. I really can’t say.

Posted by on July 2nd, 2014 at 8:03 pm


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