MM Strategic Book: US healthcare outperforms financials — #SaxoStrats
US financial shares have vastly underperformed their healthcare cousins in this current cycle since the 2008 financial crisis. But momentum is now shifting given the repricing of inflation and interest rate expectations. Furthermore, there's the potential for a public and political backlash against a US healthcare sector that has been fleecing consumers for decades. See Peter Garnry's recent works on this –he was ahead of the curve with this from 2016.
Jan 2018 Watch US healthcare on Amazon/Berkshire/JPMorgan deal — #SaxoStrats
Nov 2016 US Election: Is the health care system unsustainable? — #SaxoStrats
I would also expect the Amazon–Berkshire–JPM partnership to become a theme over the next few years, as large corporate look for better solutions for their employees. US healthcare is going to be a huge political theme in the US midterm elections in November.
At the same time – even though we've been talking about this on Macro Monday for well over a year – it seems clearer and clearer that the Fed is going to have to step up its rate hikes and the market is finally starting to come around to our thesis, that the inflation risk in the US is massively to the upside.
Also worth noting is something that I find downright fascinating: at the Fed there is not one prediction that sees CPI being higher than 2.1% or 2.3% in 2019.
See this recent interesting piece from Bloomberg citing legendary trader Paul Tudor Jones.
Inflation Is About to Appear ‘With a Vengeance,’ Paul Tudor Jones Says
IYF US financials ETF
Management and risk description
Risking 150 bps
Timing could be a risk here, given that we have already see quite a move in healthcare being washed out over the last two weeks (on a combination of Trump's State of the Union speech and the Amazon partnership).
Entry: Entry ratio level of 0.673742
Long IYF from 119.34 (US financials ETF)
Stop: Stop 0.61
Target: Targeting 0.7480 & 0.88
Time horizon: 3–18 months.
— Edited by Clare MacCarthy
Non-independent investment research disclaimer applies. Read more
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