Amid the ongoing partial government shut down, the release of key economic indicators have been delayed or suspended. Without fresh data to assess the state of the U.S. economy, active investors have now begun to adopt a more cautious stance.
Amid the ongoing partial government shut down, the release of key economic indicators—such as the jobs report, CPI, and unemployment claims—have been delayed or suspended. Without fresh data to assess the state of the U.S. economy, active investors have now begun to adopt a more cautious stance. Over the past few weeks, traditionally defensive sectors like healthcare and utilities have shown notable technical improvement. While these sectors have historically lagged their cyclical and growth-oriented sector counterparts on a relative strength basis, recent technical improvements suggest a possible rotation in the market dynamics. This shift may signal investor caution in response to growing economic uncertainty.
The chart below highlights month-to-date performance across sectors and their corresponding ETFs. The Health Sector SPDR Fund (XLV) and the Utilities Sector SPDR Fund (XLU) have gained 4.28% and 3.90%, respectively, since the start of the month. To further build the case, the Asset Class Group Scores page shows strong momentum within healthcare-related groups. When looking at the score direction leaders, the biotechnology group—a sub-sector of healthcare—currently ranks first with a score direction of 3.30, while the broader Healthcare group holds third place with a score direction of 2.64. In the DALI sector rankings, healthcare sits slightly behind the two preceding sectors, trailing only by 4 and 6 signals, respectively. Should this technical improvement continue, the healthcare sector could possibly enter the DALI “Equal-Weight” area—something it has not done since 2023.
While the recent strength in defensive sectors may appear compelling, it’s important to approach these moves with caution. As the old proverb goes, “how you get them is how you lose them” — and that may prove a bit of relevance here (although the original quote was in reference to new relationships that were sparked by infidelity). If the outperformance in healthcare and utilities is largely a function of delayed economic data and an investor’s reaction to the uncertainty, then the technical improvement for the defensive areas could be vulnerable once the shutdown ends and fresh data is released. The sustainability of this rotation will likely depend on how incoming economic indicators compare to market expectations. Until then, investors may want to avoid overcommitting to sectors that are benefiting from temporary uncertainty.
While healthcare remains a sector to underweight until further technical improvement, there are still several strong-performing names within the group worth monitoring. AbbVie Inc. (ABBV) sits on 3 consecutive buy signals and near all-time high territory. ABBV is currently in a column of Os, reverting down closer to the middle of its 10-week trading band. The 5 for 5’er moved into a positive trend in May and ranks in the top quartile of the drugs sector matrix. Additionally, the stock offers a yield of over 2.8%. Long exposure can be made here. Initial support may be found at prior resistance in the $210s, while the bullish support line and additional support sit between the upper $180s and $192. Note that earnings are expected on 10/31.
