By now everyone realizes that the most prominent investment banks on Wall Street are in serious turmoil over the subprime mortgage crisis. These groups continue to write off huge losses in the tens of billions of dollars and many analysts expect it to continue for some time. Now the FBI is getting involved and is investigating 14 companies, including lenders and financial firms, for fraud and insider trading associated with the subprime mortgage crisis.
The subprime mess is having a significantly negative impact on the economy. Many analysts believe the U.S. is headed into a recession, though it isn't official yet. Although a recession is not defined by the performance of the market, it is usually correlated with a market decline. This crisis is no different, as the S&P 500 has declined almost 10% year-to-date and 12% since October 1. However, not all sectors get hammered equally during times of economic uncertainty. In fact, some sectors actually perform better during economic turmoil. These sectors are called "defensive" and are typically not cyclical like most of the economy, but rather countercyclical. Healthcare stocks are defensive stocks, and investors usually shift their investments into these stocks en masse during economic declines and, especially, recessions. Within healthcare, orthopedics (including dental) has been, and remains, one of the most attractive defensive sectors.
During the last recession between March 2001 and November 2001, the S&P index was down 10%, the S&P healthcare stocks were down 1%, and our HealthpointCapital Orthopedic & Dental Index (comprised of the 33 public companies in orthopedics) was up 12%.
Since October 1, 2007, which marked the beginning of the subprime’s impact on the equity markets, the S&P 500 is down 11%, the S&P 500 Healthcare index is down 8%, and our HealthpointCapital Orthopedic & Dental Index is only down 1%.
