by Jeff Weniger, CFA Head of Equity Strategy & Kevin Flanagan Head of Investment and Fixed Income Strategy, WisdomTree
In June we pointed out that Health Care looks cheap. Even though it has been rallying hard of late, the sector continues to trade at a 59% price-to-sales discount to the S&P 500, despite having an 18% return on equity (ROE) that is just a hair below the 19% ROE accorded the S&P 500.
The market has taken some notice. Health Care is up about 5% over the last month, just behind Industrials and Financials. It could stand to benefit if M&A in the sector continues. Also, Health Care is a beneficiary if the market continues to put focus on users of AI who can expand their margins by using the technology.
Consider our contention that the Health Care sector appears to believe in itself by placing a “we’re hiring” sign in the window. Ever since the launch of ChatGPT, research scientists have been a prime target for forecasts of AI labor market doom. But a peculiar thing happened in November 2025 when postings for scientific research roles on the recruiting site Indeed started turning higher. Turns out the laboratories need humans to work with the AI. Pharmaceutical and biotech stocks have been outperforming for about a year; the market appears to be coming around to the view that scientific discovery will be enhanced as humans leverage their new tools.
How about Financials? Depending on whether your glass is half full or half empty, the sector appears to have just put in its third notable low relative to the market since the Global Financial Crisis. The first one came on March 6, 2009, the specific crisis low date of the 2007-2009 bear market. After surging inexorably higher that year, and outperforming in so doing, Financials spent the subsequent decade petering out versus the S&P. After drifting sideways-to-lower versus the market for essentially all of the 2010s, it managed another notable low on October 14, 2020. Like the 2009 bottom, Financials’ relative performance proved largely fleeting.
But six weeks ago, as Financials were plumbing new relative lows, the sector stopped at the support line between those two dates. The group is generally in the ascendant. Keep an eye on the big banks’ earnings this week, because Financials are currently one of the best places to be in this market, performance-wise.
A subset of Financials, regional banks, could also be poised to outperform as bond market stability takes hold. Historically, classic lenders thrived when rates rose, because that tended to open the gap between the loans they made and the deposits they took in.
That went out the window when long bonds sold off so heavily from 2020-2023 that regional banks’ balance sheets were called into question. The collapse of SVB and Signature Bank only added fuel to the fire. Relative to the broad market, regional banks have been unable to get out of bed ever since. But maybe that will change. The reality is that 10-year T-notes have been generally bopping around the mid-4s ever since the SVB crisis. A little bond market rally could help the regionals, as it would reduce the red ink on their long duration loans.
For investors who think the sideways drift in intermediate bond yields will hold, that may aid real estate-focused firms. Since 2021, we have found a tight inverse correlation between REITs and bond yields. But that relationship was shakier in 2025 and thus far in 2026.
Nevertheless, a lot of the fear in rate sensitives this spring and summer has stemmed from the prospect of the new “Warsh Cycle” causing trouble across the yield curve. Investors didn’t necessarily sell REITs, but they avoided them for fear of a hawkish Kevin Warsh. To the extent that he surprises dovish in Q3 and Q4, which is our base case, REITs may find some comfort.
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