By Christine Idzelis
DWS Group is looking for opportunities to buy stocks in the healthcare sector and to diversify around the technology-heavy S&P 500 index, according to David Bianco, DWS Group’s chief investment officer for the Americas.
“I like healthcare,” Bianco said during a media briefing Wednesday on DWS’s investment outlook. The sector has seen strong sales growth, he said, yet it has been “neglected” by investors who have been having “more fun” with growth stocks.
The healthcare sector of the S&P 500 (S&P:XX:SP500EW.35) has gained almost 14% this year, while information technology (S&P:XX:SP500EW.45) has soared more than 27%, according to FactSet data. Healthcare has also lagged the S&P 500 index’s gain so far this year of around 20%.
Bianco said the healthcare sector has “good breadth,” pointing to potential buying opportunities in areas such as managed care, devices, pharmaceuticals and biotech. He also said the healthcare sector is a large portion of the U.S. economy and the “next battleground for inflation” amid an aging population.
The capitalization-weighted S&P 500 index is “so digital in nature,” said Bianco, citing its heavy exposure to tech. Information technology represents about 29% of the S&P 500, while tech giants Meta Platforms Inc. (NAS:FB) , formerly known as Facebook, and Google parent Alphabet Inc. (NAS:GOOG) fall within the index’s communication services sector, FactSet data show.
Bianco, who cautioned against being “overly dependent” on the S&P 500 index, said he also likes small-cap stocks. The small-cap focused Russell 2000 index (USA:RUT) dropped 2.3% Wednesday, slipping into correction territory, commonly defined as drop of at least 10% from a recent peak, for the first time since June of 2020, while the S&P 500 (S&P:SPX) declined 1.2%, FactSet data show.
The sharp slide Wednesday for U.S. stock indexes came amid fresh concern over the new omicron variant of the coronavirus, as the U.S. has confirmed its first case . The tech-laden Nasdaq Composite COMP lost 1.8% Wednesday while the Dow Jones Industrial Average DJIA fell 1.3%, FactSet data show.
The U.S. stock-market drop follows Tuesday’s slump that had steepened after Federal Reserve Chairman Jerome Powell remarked during testimony to the Senate Banking Committee that the Fed would consider speeding up the tapering of its monthly bond purchases. He cited “high” inflation pressures and an economy that is “very strong.”
As for 2022, Bianco said it should be another “good year” for equity markets provided the Fed won’t need to take “aggressive” action to tame inflation. Many investors have been expecting the Fed to complete tapering before it begins hiking the benchmark fed-funds rate, which it has kept between 0% and 0.25% during the pandemic to aid with the economic recovery.
Bianco said that banks would benefit from higher rates. The S&P 500’s financials sector, which fell 1.1% Wednesday, has seen gains so far this year of about 27%, according to FactSet data.
Investors will be watching for the interest-rate forecasts of Fed officials after their next policy meeting, scheduled for Dec. 14-15.