This Dead Money Sector is Leading the S&P This Year

“This is where money goes to die,” has described one sector over the past decade but this year, things are different.

That industry is health care and for the first time since 1988, it leads the S&P with a 12 percent gain—the most among the 10 main groups. Specifically, health insurers, biotechnology companies and drug makers.

Pfizer PFE is up 9.5 percent this year. Eli Lilly LLY is up more than 12 percent, Amgen AMGN—up 8 percent, and St. Jude Medical STJ, up nearly 16 percent. The big winner is Celgene CELG—up nearly 40 percent since the beginning of the year.

But to measure a sector, looking at the ETFs will provide another glimpse as investors look for confirmation. The SPDR Health Care Services ETF XHS is up 11 percent, the iShares Dow Jones US Pharmaceuticals IHE is up nearly 10 percent, and the iShares Nasdaq Biotechnology IBB is up more than 10 percent.

Convinced? As hard as it is to believe it, it’s true. The last time the industry lead the S&P, it finished the year up 42 percent compared with gains in the S&P of 27 percent.

Analyst consensus, according to Bloomberg, is that S&P health care companies will climb 8.4 percent this year compared to growth of only 0.9 percent in 2012.

 What’s the deal with health care? Why such gains? First, you can thank Obama, according to industry insiders. Regardless of the political opinions, the facts are that a lot of people who didn’t have healthcare are about to enter the marketplace—in fact, up to 48.6 million are about to become new customers.

Second, there might be some sector rotation in the mix. While the broad market bull has been on a run, it left health care stocks behind. Now, the sector is catching up and if that’s the case, there’s still room to run.

Before diving in, there’s room for caution. First, traders know that playing biotech stocks can feel like a day at the casino. Just because Celgene is up doesn’t mean that all of the biotechs are a buy. One bad FDA ruling can slash half of their value or more overnight.

Next, if investors assume that some of this rally is due to sector rotation, that means that at some point, there will be a rotation back out. In the words of the most interesting man alive, “stay nimble, my friends.”