LIVE MARKETS-With rate cuts coming, MS backs healthcare as hedge
Morgan Stanley strategist Mike Wilson recommends healthcare as a defensive investment amid macroeconomic uncertainty, particularly as rate cuts are anticipated. He notes that large-cap healthcare stocks have low market-cap weight in the S&P 500 and favorable forward PE ratios. Positive earnings revisions in pharma, biotech, and healthcare services suggest improving fundamentals. Despite maintaining a neutral sector rating, Wilson emphasizes healthcare's potential, especially biotech, during rate-cutting cycles, while acknowledging existing policy risks.
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WITH RATE CUTS COMING, MS BACKS HEALTHCARE AS HEDGE
Morgan Stanley strategist Mike Wilson is leaning towards healthcare as a defensive play amid macro uncertainty.
In his latest note, Wilson highlights large-cap healthcare as a preferred hedge, citing historically low market-cap weight in the S&P 500 and relative forward PE valuation ratios.
Earnings revisions are turning positive across key subgroups - pharma, biotech and healthcare equipment/services - suggesting improving sentiment and fundamentals.
Biotech, in particular, tends to outperform during rate-cutting cycles, a dynamic that could play out again, as the Federal Reserve shifts toward easing.
“We prefer healthcare among defensive sectors,” he says, even though Morgan Stanley maintains a “neutral” sector rating.
While policy risks remain, including on drug pricing reforms and pharmaceutical tariffs, MS says much of the uncertainty is already priced in, given the sector’s poor performance.
The S&P 500 Healthcare (.SPXHC) has barely moved YTD and trades just above a 25-year low relative to the S&P 500 (.SPX) .
(Danilo Masoni)
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