Seeking Alpha

Politics Takes A Bite Out Of Healthcare Stocks

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Includes: SPY, XLK, XLU, XLV
by: James Picerno
Summary

Suddenly it's a tough time to own healthcare stocks. What's changed? In a word, politics.

The Health Care Select Sector SPDR (XLV) is down fractionally so far this year, shedding 0.5% year-to-date through yesterday's close (Apr. 17).

Excluding XLV, the sector gains so far in 2019 range from 9.0% for utilities - the Utilities Select Sector SPDR (XLU) - to a sizzling 25.6% advance for tech via the Technology Select Sector SPDR (XLK).

The US stock market overall is up a healthy 9.2% this year, based on the SPDR S&P 500 ETF (SPY).

Suddenly it's a tough time to own healthcare stocks. What's changed? In a word, politics.

Earlier this week, UnitedHealth Group (NYSE:UNH) CEO David Wichmann took the rare step of weighing into political terrain and warned that the "Medicare for All" proposals favored by Democratic lawmakers and candidates running for president would lead to challenges for the US healthcare industry in more than trivial degrees. Speaking to Wall Street analysts he said:

The wholesale disruption of American health care being discussed in some of these proposals would surely jeopardize the relationship people have with their doctors, destabilize the nation's health system and limit the ability of clinicians to practice medicine at their best. And the inherent cost burden would surely have a severe impact on the economy and jobs all without fundamentally increasing access to care.

Hyperbole? Maybe, but Mr. Market is selling first and asking questions later.

Indeed, healthcare stocks are now the outlier in an otherwise across-the-board rally for US equity sectors in 2019, based on a set of exchange traded funds. The Health Care Select Sector SPDR (NYSEARCA:XLV) is down fractionally so far this year, shedding 0.5% year-to-date through yesterday's close (Apr. 17). That's a trivial loss, although it speaks volumes when compared with the solid increases in the other major sectors of the US equity market.

Excluding XLV, the sector gains so far in 2019 range from 9.0% for utilities - the Utilities Select Sector SPDR (NYSEARCA:XLU) - to a sizzling 25.6% advance for tech via the Technology Select Sector SPDR (NYSEARCA:XLK).

The US stock market overall is up a healthy 9.2% this year, based on the SPDR S&P 500 ETF (NYSEARCA:SPY).

UnitedHealth's Wichmann also noted that "we continue to see the chances that 'Medicare for All' becomes a reality as slim, but recognize that while the conversation remains in the spotlight payors (among other subsectors) will likely remain under pressure."

To be fair, healthcare stocks have been treading water for the past month or so, based on XLV, and so it's hardly a shock to find that this slice of the equity market is lagging the broad market and the other sectors. Expected or not, the latest round of selling may be a buying opportunity, according to some analysts.

"We believe the sell-off in health care services is overblown, as concerns around 'Medicare For All,' the pharma regulatory environment and persistent [Affordable Care Act] noise have triggered panic selling across the universe," advised Oppenheimer analysts in a research note.

Perhaps, but in the meantime it seems that the healthcare sector may be a barometer of election prospects for Democratic presidential candidates generally and Bernie Sanders (who embraces the most progressive changes in healthcare policy) in particular. The deeper the slide in healthcare shares, it's tempting to reason that the market is giving higher odds that a Democrat will retake the White House in 2020.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.