Earnings Checkup Beckons For An Exciting Healthcare ETF

Like other sectors, healthcare tumbled last week, but the group's decline was less bad than that of the broader market. The Health Care Select Sector Index (IXVTR) fell 3.42 percent, less bad than the 4.12 percent shed by the S&P 500.

The sector, the S&P 500's second-largest sector weight behind technology, remains one of the best-performing groups in the benchmark U.S. equity gauge this year, a status that could be tested by looming third-quarter earnings reports.

What Happened

The Direxion Daily Healthcare Bull 3X Shares CURE is the go-to leveraged exchange traded fund (ETF) for the healthcare sector. CURE looks to deliver triple the daily returns of the Health Care Select Sector Index.

That index “includes the following industries: pharmaceuticals; health care equipment and supplies; health care providers and services; biotechnology; life sciences tools and services; and health care technology,” according to Direxion.

Why It's Important

Data suggest that, as of the end of third quarter, sell side analysts are decidedly bullish on the healthcare sector.

“At the sector level, analysts are most optimistic on the Energy (59%), Health Care (58%), and Materials (58%) sectors, as these sectors have the highest percentages of Buy ratings,” according to FactSet.

Thirty-eight percent of S&P 500 healthcare stocks are rated Hold or an equivalent rating by analysts. Dow component UnitedHealth Group Inc. UNH, one of the largest holding in the Health Care Select Sector Index, one of the highest percentages of Buy rating of any U.S. stock.

What's Next

In a word: earnings. For the three weeks starting Oct. 15 and ending Nov. 9, approximately 89 percent of the Health Care Select Sector Index steps into the earnings confessional, spelling plenty of opportunity with CURE.

The risk is that earnings disappoint and that healthcare lives up to its historical billing as one of the worst-performing sectors in the S&P 500 in the month of October.

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