The health-care sector is bleeding after a series of sell-offs set the group up for its worst weekly performance in 2 years.
But this week's sell-off should prove a minor injury to a sector on the mend, says Matt Maley, equity strategist at Miller Tabak.
"Even when we get these hiccups, I don't think you're going to see the big sell-off that we had a couple years ago," Maley told CNBC's "Trading Nation" on Thursday.
The XLV Health Care ETF plummeted 4 percent this week, battered by news that Amazon, J.P. Morgan and Berkshire Hathaway had partnered to develop an employee insurance program in the years to come. The announcement was seen as a potential disruptor to an industry already dealing with the uncertainties of health-care changes coming from Washington, D.C.
The sector was also swept up in a broader sell-off on Wall Street. The had declined by 3 percent by midday Friday, on track for its worst weekly performance in roughly 2 years. The Dow Jones is also on track for its worst week since early 2016.
This kind of sell-off in health care was natural after such a steep run-up in January, says Maley.
"It had this huge, huge rally in January," he said. "It was well ahead of the market for the first time in a while, so it was susceptible to a pullback."
The Health Care ETF rose 6.5 percent in January, its best gains since October 2015. The ETF surpassed the S&P 500's 5.6 percent gains, its best monthly gain since March 2016. Dow components UnitedHealth Group and Merck & Co. were among the drivers of the index's gains in the year to date.
A sense of PTSD is natural for investors so soon after health care's massive losses toward the end of 2015 and through 2016. The health-care sector plummeted 8 percent in August 2015 as part of a broader market sell-off and then 6 percent in September 2015 after coming under attack by then-Democratic presidential candidate Hillary Clinton. At that time, Clinton had detailed her plans as president to address price gouging by drug companies.
This year is different, says Maley. Back in 2015, the XLV and IBB Biotechnology ETF were "very over-owned and very over-leveraged." The IBB surged 34 percent in 2014, triple the S&P 500's gains, and 11 percent in 2015 before tumbling in 2016. By comparison, the S&P 500 fell slightly in 2015.
Investors should re-enter health-care stocks with caution, says Phil Streible, senior market strategist at RJO Futures, as the sector remains vulnerable to market swings.
"If you're going to play it here and want to get back in buying the dip of the health care, you may go into health care but also buy puts on the Dow Jones or one of the broader indexes," said Streible on a recent appearance on "Trading Nation." "They tend to throw the baby out with the bathwater."
Streible views Tuesday's low as a key level that the sector should prove resistant to dip below. The Health Care ETF fell to an intraday low of $89.22 on Tuesday before easing off the bottom to end at $89.49. The ETF was down 2.1 percent on Tuesday in its worst one-day loss since October 2016.
