S&P 500: Financials and Health Care to outperform the market – Charles Schwab

According to economists at Charles Schwab, financials and health care sectors are likely to perform better than the broader stock market as represented by the S&P 500 Index.

Key quotes

“A moderate fiscal stimulus combined with a Fed that is likely to be very cautious about raising rates AND the potential for very effective vaccine could push longer-term interest rates higher – augmenting solid fundamentals in the Financials sector.”

“The financial sector tends to outperform in the early expansion phase of the business cycle, and we think that quite attractive valuations and strong financial positions are enough to lead to outperformance. Risks would include: the surge in COVID-19 infections could result in renewed stay-at-home orders – stalling the economic recovery – or there could be significant increase in regulations on the sector under the new administration.”

“Renewed health care sector is set to outperformance based on the long-term positives, including an aging global population and a growing middle class in emerging markets, all of whom will demand more extensive drug treatments and medical care over time. Balance sheets in the sector are solid, increasing the possibility of higher dividend payments, share-enhancing stock buybacks and M&A.” 

“Any legislation to control drug prices could weigh on pharmaceutical companies’ profits. Additionally, the Supreme Court is expected to rule on the constitutionality of the individual mandate provision of the ACA in 2021, and that could lead to the entire ACA being repealed. However, in the opening arguments heard on November 10, the majority of the justices indicated that a total repeal was unlikely, and there is little political appetite to allow chaos throughout the health-care system.”