The public view of healthcare and pharma continues to get worse and worse. U.S. healthcare stocks have been lagging and may not see any kind of rally in 2019.
Ironically healthcare was the best-performing major S&P 500 sector last year despite the overall market falling. The pressure has been mounting from the Federal government to lower the cost of healthcare, especially prescription drug prices.
The 2020 U.S. president election campaign is under way and the contradictory positions of the Democrats and Republicans could add to the volatility of healthcare and pharma shares. The Federal Reserve signaling that it was not inclined to raise interest rates has also had investors piling into tech stocks and safe-haven stocks.
“When the Fed shifted their stance in early January, it totally changed the backdrop,” explained Walter Todd, chief investment officer at Greenwood Capital in South Carolina.
According to Todd, investors sold healthcare stocks and “started buying the most beat-up names.” “If the healthcare companies are reporting good earnings and the stocks continue to underperform, then you start to get some valuation support,” remarked James Ragan, the director of wealth management research at D.A. Davidson. “I’d love to say that healthcare is going to claw back a lot of this underperformance,” said Jeffrey Schulze, an investment strategist at ClearBridge Investments.
According to Schulze, political risk and other market groups leading, “when it’s clear that global growth is going to come, may weigh on the sector’s prospects.”
The decline in health-care and pharma stocks may continue as Wall Street digests the uncertain time for the future of U.S. health-care policy. Tighter regulations being demanded and the questions of a single -payer system called “Medicare for All” has investors worried over the impact such a system could provide.
It was also in 2010 when the Affordable Care Act was signed into law that March that the healthcare sector dropped 5.1% on the S&P 500. This year the sector is already lagging the S&P 500 by nearly 17 percentage points, the largest gap in performance since the year 2006.
“We are now in the midst of one of the worst pull-backs in the past 20 years,” Evercore ISI analyst Ross Muken commented. “I think we can officially confirm health care has entered a panic of sorts.”
