Economy

Healthcare draws poll-year worry, 2016 repeat unlikely

Sector was hit then by fears about new drug pricing rules

With another election year looming, investors in the healthcare sector are wary the coming months could reopen wounds suffered during the 2016 U.S. presidential race.

Healthcare becoming as hot an issue in the 2018 midterm elections as it was two years earlier could threaten the sector. A big risk stems from voters giving majorities to Democrats in the U.S. Senate and House of Representatives, in a rejection of President Donald Trump’s Republican party. Investors worry that shift would pressure the industry, including through a greater focus on prescription drug prices, even if Mr. Trump’s grip on the presidency tempers any regulatory changes.

In 2016, similar scrutiny had plagued the healthcare sector, particularly pharmaceutical and biotechnology shares.

“If we woke up tomorrow and it was a given fact (the Democrats) were going to take over the House and the Senate, healthcare would be one of the worst-performing sectors of the market,” said Walter Todd, chief investment officer at Greenwood Capital Associates.

Momentum behind such a shift appears to be building after Democrat Doug Jones won a special Senate election in Alabama that will cut the Republicans’ Senate edge to 51 seats against 49 Democrat seats.

Even so, healthcare shares would likely stand up better to election risk in 2018 than they did to the scrutiny of the sector in 2016.

Tax overhaul to support

For one, the sector is cheaper relative to the broader market following 2016’s struggles. Investors also say it could benefit from a potential boost in merger activity if drugmakers and other multinational companies bring back cash held overseas under the tax overhaul bill moving through U.S. Congress.

The stocks also may be less vulnerable now to news about high drug prices and other healthcare developments, having already weathered those headlines in 2016, investors say.

And some investors are also less concerned that healthcare will be a significant topic on the campaign trail this time around, given other issues that have come to the forefront since Mr. Trump’s election.

“I think there will be fears. Do they come in March? Do they come in May? I don’t know when they come, but yes there will be fears of the election,” said Teresa McRoberts, a portfolio manager at Fred Alger Management.

Still, Ms. McRoberts added: “The downside in the group it’s hard for me to see that it is going to be as much as it was in ’16.”

Healthcare shares had struggled for most of 2016, undermined by investor fears about new drug pricing rules or other regulations, especially should Democratic presidential candidate Hillary Clinton have won.

The sector declined 4.4% that year, making it the worst performer of all major sectors, while the overall S&P 500 rose 9.5%.

On balance, however, midterm election years have treated healthcare stocks well. According to Thomson Reuters data dating back to 1990, the sector’s annual performance on average topped the broad S&P 500 by 2.7 percentage points. But in the seven midterm years over that time, it outperformed by 6.2 percentage points on average.

Healthcare stocks rebounded by 21.5% so far in 2017, but that was nearly matched by the 19.3% rise for the S&P 500.

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Printable version | May 29, 2020 7:23:24 AM | https://www.thehindu.com/business/Economy/healthcare-draws-poll-year-worry-2016-repeat-unlikely/article21823118.ece

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