Do you fancy yourself a contrarian? Of course you do. Just like everyone else who spends their days perusing online macro-market commentary.

I’m kidding. Sort of. But contrarians are a dime a dozen in this business which raises definitional questions: If everyone’s a contrarian, the term has no meaning.

Anyway, if you like to go against the grain, maybe buy some Health Care stocks. Not investment advice. Just a quick nod to a historic run of underperformance for the sector, illustrated on the left, below.

The charts are from Goldman, whose David Kostin noted that the cumulative underperformance for the sector seen over the past several years has no precedent looking back half a century. “The sector now constitutes just 9% of S&P 500 market cap,” down six percentage points in less than three years, he remarked.

The figure on the right gives you a sense of the valuation discount. It’s extreme whether you take the index versus the S&P or the median stock (i.e., the disparity’s not just a function of rich mega-cap multiples).

What accounts for this? Well, the same thing that usually accounts for Health Care underperformance, according to Kostin. In all three historical cases, “the sector struggled due to an optimistic equity market outlook for economic growth, weak earnings revisions relative to the broader market and elevated Health Care policy uncertainty.” The AI frenzy’s exerting a lot of additional drag for Health Care: Nobody wants to own boring Health Care when you can own new Clippy.

Kostin suggested the unfavorable zeitgeist for the sector isn’t likely to change unless and until investors sour on the outlook for the US economy, given that Health Care trades as a Defensive.

You might argue the outlook is in fact dimming. Goldman wouldn’t necessarily disagree, although they wouldn’t endorse anything like a recession view either. “The recent increase in layoff announcements and cautious commentary among select consumer companies have raised investor focus on the downside risk to economic growth,” Kostin said. “If these concerns continue to build, Health Care will likely outperform.”

Meanwhile, BofA’s Michael Hartnett offered the chart below as a not-so-subtle reminder about Tech outperformance.

As the chart text suggests, Hartnett views bad breadth as a canary. Note the annotation on the figure: You’re looking at ranked returns in the lead up to the dot-com bust.

“Booms and bubbles always end with ‘watch out’ and ‘get out’ tells,” Hartnett said, noting that although there are “plenty of ‘watch out’s” currently, including market cap concentration and rich valuations for the AI mega-caps (which trade at 45x trailing earnings), “‘get out’ tells are always interest rates, and the Fed ain’t hiking.”

Speaking of the TMT bubble, Kostin reminded investors that Health Care outperformed when the dot-com boom finally unwound in 2000.

The figure above shows you the correlation between big tech and Health Care. We’ve seen a regime shift since 2023, which is to say since ChatGPT took the world by storm and since Nvidia took over the stock market.

Even if you’re determined “this time’s different” (i.e., that AI isn’t a bubble), Health Care will probably benefit from the technology sooner or later.

“As development and adoption continue, Health Care should rank among the potential beneficiaries of AI productivity gains,” Kostin went on, adding that the sector also stands to be a “revenue beneficiary if AI assists with the discovery and development of novel therapeutics.”

If AI is indeed going to assist in curing diseases, including and especially the “disease” that is the aging process, I wish these models would get on with it. I’d like to be 27 again before I die, and the clock’s ticking.