A Reading Not Seen Since 1999 Means Double-Digit Upside

This essay was originally published in DailyWealth Trader, a daily trading advisory, and has been adapted. To learn more about this service, click here.

A 27-year low is flashing in the market.

We haven't seen a reading like this since late 1999... back when Amazon (AMZN) was still an online bookstore.

Everything was about the Internet back then. The exciting technology names got all the attention.

Folks didn't want anything to do with the market's "boring" sectors.

We're seeing a very similar situation play out right now. The hype around big AI names today resembles the narrative tech stocks had in the '90s. And once again, people are forgetting about the boring stuff.

That's why this new 27-year low is so important. It's a warning to investors ditching the boring parts of the market. And it points to upside potential for investors who catch on early enough.

I'm talking about the relationship between healthcare stocks and the S&P 500 Index.

Since 2022, healthcare has been a major loser. In fact, the State Street Health Care Select Sector SPDR Fund (XLV) is up just 42% since the start of October 2022. Meanwhile, the State Street SPDR S&P 500 Fund (SPY) is up 121% over the same period.

Most folks are ignoring it, but XLV is a secondary benefactor of the AI boom. And that's likely to help drive the healthcare sector higher from here.

Until recent months, though, you would have been much better off owning SPY than XLV. The XLV-to-SPY ratio recently fell to its lowest level since late 1999...

As the ratio shows, we've just seen one of the worst runs for healthcare stocks in decades relative to the market. But there's a silver lining...

This poor performance won't last forever.

Healthcare Stocks Are Finally Breaking Out

The XLV-to-SPY ratio typically reverses after years of struggle. That's because XLV can chop sideways for years before sparking a new rally. We saw that in the mid-2000s... twice in the 2010s... and once after the pandemic drop in 2020.

And this fund is already breaking out of its sideways range again...

In each of these past cases, XLV broke out of a sideways range before starting a multiyear run higher.

The first example in 2005 led to a 17% rally before its peak in 2007.

The second case was much better. XLV rose 119% from March 2012 to July 2015. That crushed the S&P 500's 62% return over the same period.

Then, from January 2017 through December 2018, XLV rose 29%. Healthcare stocks more than doubled SPY's 14% return during that time...

The last setup came in April 2021. Many tech stocks were starting to peak before the 2022 bear market. Healthcare stocks rose 17% in roughly a year... while SPY rose 9%.

In short, XLV is in an uptrend today and closing back in on new highs. It has broken out of a multiyear sideways range.

And while it has underperformed the broad market for years, that's likely to change as it awakens from slumber.

Make sure you're not ignoring the healthcare sector today. Double-digit gains are likely as a new rally kicks off.

Good investing,

Chris Igou