Healthcare is the only sector where investment analysts are more confident this year that they were last year, according to the closely watched Fidelity International Analyst Survey. 
Each year, Fidelity International polls its global analyst team to ‘take the pulse of the corporate landscape’, examining the findings of around 16,000 individual company meetings to gain some insight into the bigger picture.
In a recent article, we showed how the Fidelity Sentiment Indicator – which is an aggregate measure of corporate confidence through the eyes of the group’s 165 analysts that take part in the survey – has just had its sharpest drop ever. It went from 1.6 in 2018 to just 0.6 this year.
A wave of optimism in healthcare
Source: Fidelity International Analyst Survey 2019
However, the survey also finds out what Fidelity’s analysts think about individual sectors. In the latest edition of the survey, healthcare was described as “a rare ray of light” as it is the only sector to show an improvement in sentiment.
Its reading has gone from 1.1 in last year’s research to 1.4 now. This means healthcare is the sector with the highest optimism reading and represents the third straight year that sentiment has improved towards it.
Furthermore, not a single analyst thinks the sector is in slowdown, against an overall average of 30 per cent, while one in five said it is witnessing a mid-cycle expansion. Other sectors are seen as being much further along in the business cycle.
Michael Sayers, director of research, equities at Fidelity International, said: “Healthcare is not immune to political headwinds, particularly in the US where politicians have called on pharmaceutical companies to cut costs to customers.
“But given that it is a defensive sector companies are less exposed to slowdowns in demand. One of the sector’s advantages is that people are often willing to spend on healthcare and forego other unessential luxuries.”
When it comes to financials – which is the largest constituent of the MSCI World index – Fidelity’s analysts have recorded their first fall in sentiment for three years.
However, the overall measure for analyst sentiment towards the sector remains positive and the drop itself is the smallest among the sectors at just half a point.
Fidelity sentiment indicator for sectors
Source: Fidelity International Analyst Survey 2019
“The financial sector was shaken by volatile markets in 2018,” the report added.
“Analysts report a significant move into the latter stages of the business cycle, with more than 80 per cent of analysts noting the end of expansion and the start of a slowdown. Three-quarters of analysts say their companies are reacting to the indicators associated with the end of the market cycle, compared with just 31 per cent last year.”
It’s also bad news for the technology sector, which Fidelity said “has fallen a long way in 2019”. Last year, the sector’s sentiment indicator stood at 2.1 points but has dropped to just 0.5 today.
The group’s analysts said that only 17 per cent of company managements are more confident to invest in their businesses than last year. This compares with 84 per cent when asked in 2018.
This lack of confidence has been attributed to the challenges of generating ‘growth upon growth’. US companies, which are the biggest spender on IT, benefited last year from major tax cuts and other incentives that have already boosted the tech sector but will not be repeated.
The industrials sector is another that has witnessed a “precipitous drop in sentiment” in the latest Fidelity International Analyst Survey, with its reading dropping from 1.6 in 2018 to a barely positive 0.1 in 2019.
“Companies have little room for further expansion this cycle, and almost half of analysts expect declining returns on capital while only 6 per cent report a more confident management at their companies,” the report said.
Sentiment towards materials declined to 0.5 points this year from 1.7 points in 2018. The outcome for this part of the market will be determined by China, which is the biggest consumer of a number of commodities and base materials but is going through an economic slowdown.
Sentiment within the energy sector is down in line with the oil price slump towards the end of 2018 and Fidelity’s indicator has moved from 2.1 points to 0.5. “That’s one of the biggest sentiment swings for any sector in the survey this year – a decrease matched only by the drop in sentiment toward technology,” analysts added.
In the consumer staples sector, sentiment fell from 2.1 points to 0.7 with rising costs being and shaken consumer confidence being the cause of analysts’ concerns here.
Consumer discretionary cycle moves to slowdown
Source: Fidelity International Analyst Survey 2019
But it is the consumer discretionary sector that has the most pessimistic reading in this year’s Fidelity International Analyst Survey. Its reading has fallen to -0.5 points.
“Almost half [of Fidelity’s analysts] say the sector is in the slowdown phase of the cycle, a greater proportion than for any other industry, while more than half see declining returns on capital,” the report said.