“The Federal Reserve is expected to hike three or four times this year, and we could see six hikes from the Bank of Canada. So rate expectations are going to be high,” Clare says. “Also, I think about this. Inflation is likely to moderate in the second half of the year.”
Recent reading from the US shows inflation rose to 7% year-on-year in December, a four-decade high. Claire believes the factors driving growth – supply chain bottlenecks, the federal budget deficit, and COVID-driven spending on goods at the expense of services, to name a few – are on their way toward reversal. is likely to. Because of this, they fear that by the fourth quarter of 2022, inflation will fall below the extremes the world has been witnessing recently.
“With rates rising and inflation expectations falling, real rates are rising,” he says. “Historically, healthcare has benefited from that type of environment, and we’re seeing it not only in the pharma names, but also in the biotech and medical device subgroups. So I think from a macro perspective, Things are set up very well for healthcare this year.”
Another sign of things to come, he says, is a building rotation from growth to value stocks. With the US healthcare index trading at a 21% discount relative to the S&P 500 from a price-earnings perspective, compared to an average 6% relative premium over the past 30 years, he argues that healthcare stocks are a real value area right now.
To put this in historical context, he says the broader healthcare sector is trading roughly where it was in 2009, when the Affordable Care Act was a concern, and in the early ’90s when former US President Bill Clinton was elected for the first time and healthcare reform was in focus. He estimates that healthcare stocks have been as cheap or cheaper than the market over the past 30 years.