During the rampant "AI bubble theory" in the market, healthcare leading value stocks broke through the vacuum and rose.

Understanding that with various pessimistic views on the "AI bubble" sweeping through the global financial markets, global investors are reevaluating their heavy bets on technology stocks and bond assets closely related to artificial intelligence with unclear AI monetization paths. Therefore, investors have been pouring real money into those star value stocks since November that have solid cash flow, long-term stable profit data, and valuations historically lower than popular AI technology stocks such as NVIDIA Corporation, AMD, and Micron. In the current wave of global funds flowing into value stocks, the US stock market has long been biased towards defensive sectors and hedge funds tend to hedge against severe market volatility. The sector representing global value stocks, the "Healthcare companies," has been the biggest winner in this global rotation of funds. According to the latest views of Wall Street financial giants like Wells Fargo & Company, this year's Christmas frenzy rally may not arrive as historical data suggests, indicating that the upward trend towards value stocks is far from over. Value Stocks Generally refers to companies whose stock prices are underestimated relative to their intrinsic value over the long term, characterized by low price-to-earnings (P/E) ratios + low price-to-book (P/B) ratios, as well as long-term high dividend yields, mature business lines, long-term stability of profits and cash flow, and many established older companies. Over the past decade, technology and growth stocks have performed extremely well in a low-interest rate and loose monetary policy environment, leading to market funds often favoring companies that fit the narrative of "high growth and long-term bull market." The so-called value stocks are typically concentrated in finance, consumer essentials, utilities, traditional energy, telecommunications, and healthcare. Among them, the healthcare sector, with stable growth in profits and long-standing stable value in the institutional investor community, acts as a "compass" for measuring the momentum of global value stocks and represents the trend of value stock changes the most. Recent statistics show that as of the closing of the US market on Tuesday, the S&P 500 Healthcare Sector Index has risen significantly by 10%, outperforming the other 10 sub-sectors in the S&P 500 index. During the same period, the benchmark stock index of the US market - the S&P 500 Index - fell by 1.1%. Among them, Eli Lilly and Company, the company behind the globally popular "weight-loss miracle drug" Trulicity, saw its stock price surge by about 29%, becoming the first healthcare company in the world to achieve a market value of $1 trillion. Regeneron Pharmaceuticals, Inc., Merck & Co., Inc., and Biogen Inc. have all risen by at least 18% since the end of October, outperforming both the S&P 500 Index and the Nasdaq 100 Index. As shown in the chart above, the momentum of healthcare stocks is strong - outperforming all other sectors in the S&P 500 Index this month. "The smart money" buying into the healthcare sector This scale of fund rotation is largely driven by aggressive buying from hedge fund institutions known as "smart money." According to statistics from the bulk brokerage business of Goldman Sachs Group, Inc., the US healthcare sector has been the largest net buying segment for four consecutive weeks, and last week's inflow was the largest in more than five years. Global mutual funds followed closely behind, increasing their allocation to the sector to a weight exceeding their allocation in the S&P 500 index ETF, as shown by the institution's data. "In parts of the tech sector obviously being priced 'perfectly 100%' and anxiety and strong concerns exist in the stock market about an AI bubble, investors are actively looking for undervalued assets," said Sarah Hunt, Chief Market Strategist at Alpine Woods Capital Investors. As the healthcare stocks surge, the S&P 500 and the technology-driven Nasdaq 100 have been experiencing strong volatility, with significant intraday fluctuations becoming the norm. For hedge funds, it is an opportunity to allocate to value stocks. Popular global tech stocks including Oracle Corporation, NVIDIA Corporation, AMD, and others, which have long been considered "darlings of AI," have experienced rare continuous declines in stock prices. Market sentiment towards Oracle Corporation defaults has risen, leading to unusually active trading in Oracle Corporation CDS. Global hot AI tech stocks such as NVIDIA Corporation, Oracle Corporation, as well as companies from Asia like Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, SK Hynix, Micron, Tokyo Electron, etc., have recently seen widespread declines, with the core logic behind investors increasingly concerned that the future profits of these tech giants may not be enough to justify the current valuations, and the monetization pathway for AI applications is insufficient to support global technology companies' continued hefty investments in expensive NVIDIA Corporation AI GPU computing clusters. With continued lackluster and occasional negative nonfarm data growth, the market is increasingly concerned that a cooling job market in the US and persistent inflation will lead to reduced spending, putting pressure on consumer stocks. The strong rise in the global healthcare sector is in line with the performance of a healthcare index compiled by PivotalPath, a hedge fund research company, which rose 13% in the three months ending September. The company attributes the increase not only to global fund inflows into value stocks due to AI bubble fears but also to strong clinical trial results, unexpected acceleration in AI-enabled research and development pipelines, and a comprehensive rebound in M&A activities between biotech and large pharmaceutical companies. "Fund managers are currently bullish on all the opportunities in the healthcare sector. However, there has been some noticeable differentiation within the sector, and the excess returns are being driven by active mergers and acquisitions pipeline and regulatory tailwinds," said Jonathan Caplis, CEO of PivotalPath. A real turning point In another research report emphasizing quarterly positions, analysts from Goldman Sachs Group, Inc. stated that excluding brief surges in early 2020 and early 2023, hedge funds have reached their highest overweight exposure to healthcare in a decade as they enter the fourth quarter performance review. In the previous third quarter, global fund managers raised their overweight allocation to the healthcare sector by 260 basis points while almost reducing their exposure to discretionary consumer sectors by an equal magnitude. Among some of the most notable stocks, the stock price of US pharmaceutical leader Merck & Co., Inc. has risen by 23% in November, with optimism growing on the company's future prospects beyond its blockbuster cancer drug Keytruda, thanks to recent mergers and successful clinical trials. Regeneron's stock has surged by 21%, following regulatory approval of a high-dose version of its eye drug, with investors expecting this to give the therapy a more favorable position in competition with the flagship drug of the Swiss pharmaceutical giant Roche Holding AG. Amgen Inc.'s stock price has risen by 14% this month, as its quarterly earnings performance far exceeded market expectations. "The healthcare sector has long lagged the broader market, to the point where people forgot it could grow. Now, in addition to the fear of an AI bubble, when you see a real turning point in revenue and profit, the sector is finally attracting a lot of inflows," said David Mazza, CEO of Roundhill Financial Inc. "What makes this trend more attractive is that valuations are still quite attractive relative to historical data, so investors are getting fundamental improvements without paying peak valuations." Undoubtedly, earnings growth is also a core logic driving hedge funds into healthcare. In the third quarter, the largest public healthcare companies in the US outperformed other industries, as increased use of new drugs and specialty pharmaceuticals, continued demand for weight-loss drugs, and strong growth in hospital visits boosted profits. As shown in the chart above, of the 11 sub-industry categories in the S&P 500 Index, healthcare companies in the index had the highest proportion of earnings beating expectations during this period, making it the best quarter for the industry in over four years. In the US stock market, healthcare stocks are currently trading at a price-to-earnings ratio of about 18.7 times the expected earnings for the next 12 months, while the overall S&P 500 index is at 22.1 times. Goldman Sachs Group, Inc. also points out that the tilt towards the healthcare sector is most pronounced in the biotech sub-sector, which benefits from the resurgence of clinical breakthroughs, the recovery of M&A activity, and the widespread adoption of AI-driven drug development. Alnylam Pharmaceuticals Inc. tops Goldman Sachs Group, Inc.'s list of rising stars in biotech, while Abivax SA, Natera Inc., and Cidara Therapeutics Inc. are newly included in the hedge fund's VIP list, which are the most favored stocks by hedge funds. The "Christmas faith" faces a major test, value stocks are expected to continue to rise Just a few weeks ago, with global funds continuing to flock to hot AI concept tech stocks, robust corporate profit data, and the seasonal trend of strong stock markets underpinning US stock market expectations for a strong year-end rally (the so-called "Christmas rally") seemed almost a sure thing. However, with recent uncertainty in Fed rate cut expectations and pessimistic views surrounding the "AI bubble" affecting investor sentiment, institutional investors on Wall Street are no longer as certain about the direction of US stock prices, but rather, there is a growing bullish sentiment towards value stocks. Investors continue to show signs of caution, as the latest statistics show that demand for options to hedge against downside risks in large tech stocks such as NVIDIA Corporation, Microsoft Corporation, etc., is nearing its highest level since August 2024. After three weeks of severe global stock market volatility caused by the AI bubble narrative, the VIX index is near the 20-point mark, which is usually seen as a signal of increased selling pressure in the market. "Seasonal optimism has always been an investor's friend, but it's important to remember that it's not absolute," said Dan Greenhaus, Chief Economist and Strategist at Solus Alternative Asset Management LP. Ed Yardeni, founder of Yardeni Research, expressed that it is unlikely for the S&P 500 Index to reach 7000 points by the end of the year - which would be about a 4% increase from the current level. Yardeni cited that some investors are taking profits in positions related to AI and R&D. JC O'Hara, Chief Market Technician Analyst at Roth Capital Markets, has called for caution regarding tech stocks in a report last Sunday. In a recent report, Wells Fargo & Company downgraded its rating on the S&P 500 IT sector (which includes popular AI technology stocks such as NVIDIA Corporation, Microsoft Corporation, Broadcom Inc.) from "buy" to "neutral" due to current overvaluation. The strategists at Wells Fargo & Company recently stated that a broader sector rotation is occurring in the market, with investors transitioning from the technology sector to defensive value sectors. Therefore, Wells Fargo & Company advises investors to gradually reduce holdings in consumer and overvalued tech stocks, while recommending to restore healthcare stock allocations to standard levels and moderately increase exposure to value sectors such as utilities, industrials, and finance. A report by J.P. Morgan shows that the core narrative in the market has shifted from "watching the Fed closely" to "rotation from big tech to value stocks." The institution believes that whether the Fed pauses rate cuts or continues with further cuts next, the transfer of funds from tech to value will be strengthened. Strategists at J.P. Morgan state that the value factor is undervalued globally, with US value stocks being particularly attractive. AI