The bear market that is characterizing Wall Street at present, has served to drive even the most stable stocks downward. Apple and Tesla are just two among a plethora of key stock market players whose share prices have experienced major dips. Apple, for example, saw a 20% decline in share valuation this past year. However, in contrast to the losses big tech behemoths are seeing, healthcare organizations are seeing the reverse happen. Healthcare stocks saw measurable gains as other companies continue to incur measurable blows.
There are various reasons why healthcare stocks like Merck and Cigna are performing well in a tough bear market. For starters, healthcare stocks are historically among the most resilient. This means that these stocks tend to weather economic storms rather well. The reason for their resiliency is multi-factored. First, healthcare is something that is a necessity no matter the state of the economy. Thus, even during a recession, businesses in these sectors continue to do better than those in non-essential industries.
Second, many healthcare stocks offer sizable dividends. The higher the return on investment, the more attractive those stocks become to a potential investor. Lastly, the barrier of entry to investing in healthcare stocks is measurably lower than in other sectors of commerce. This means that healthcare stocks are more able to attract investors without as much capital to put down on an initial investment.
Since recession fears are growing, healthcare stocks will likely prove to be the wisest investment one can make right now. Lauren Goodwin, an economist and portfolio strategist at New York Life Investments, explained that healthcare stocks could be the key to keeping an individual’s portfolio stable despite any curveballs that may befall the economy. This assertion is particularly potent now given that fears of a recession are growing immensely. Solita Marcelli, a chief investment officer of the Americas at UBS Global Wealth Management, added that healthcare stocks have been predictably reliable in times of economic turmoil since 2003. She noted that even in a lackluster economy these stocks tend to do about 6% better than those in other areas of business.
That being said, healthcare stocks are still stocks, which means there still is a risk when you invest. Healthcare companies are not immune to making mistakes that could put their business in vulnerable positions. This in turn would drive the stock price down regardless of what industry the company is in. Additionally, just because a company or an area of industry is recession resilient doesn’t necessarily mean that it is recession-proof. Hence, there are certainly risks to weigh depending on the healthcare stocks one is looking to purchase.
Finally, it is important to realize that the Federal Reserve is currently contending with a completely unfamiliar economic scenario. Thus far, all of the historically successful inflation-combatting maneuvers that the agency has tried have failed to slow down inflation and cool the economy. So, it’s important to understand that even though healthcare stocks have been historically reliable in times of economic turmoil, it doesn’t mean they will be during this unknown economic state that the country is in midst of navigating. The country is floating in uncharted seas, and that means anything goes.