Health-Care Stock Rout Deepens Amid Political Pressure -- 2nd Update
April 17 2019 - 5:28PM
Dow Jones News
By Amrith Ramkumar
Health-care stocks are trailing the broader market by a historic
margin early in 2019, the latest example of how political shifts
have buffeted certain sectors.
With another slide Wednesday, the S&P 500 health-care sector
is now down 0.9% for the year, compared with a 16% advance for the
broader index. If that gap holds through the end of the month, it
would mark just the second time since 2000 that an S&P 500
sector has lagged behind by a margin that big in the first four
months of the year, according to Dow Jones Market Data.
The largest deficit for health-care stocks previously through
April was 7.6 percentage points in 2010. The group is on track to
be the index's worst-performing sector at the end of April for the
first time since 2006.
Its latest declines have been sparked by a number of signs that
politicians on both sides of the aisle are vying for tighter
regulations ahead of the 2020 presidential election.
"We've had periods in the past where this has happened, but the
intensity and the number of issues that are on the table are more
than I've seen in multiple years now," said Ana Gupte, a senior
health-care analyst at SVB Leerink.
Insurers have been among the market's worst performers lately
amid uncertainty about the future of U.S. health-care policy. So
far this year, Cigna Corp. shares are down 23%, while shares of
Humana have fallen 19% and UnitedHealth Group Inc., the nation's
largest health insurer, has lost 13%.
Democrats in Congress have unveiled plans for a new federally
financed health system that would expand Medicare to everyone and
overhaul the Affordable Care Act. UnitedHealth Chief Executive
David Wichmann argued against so-called Medicare for All and other
broad government-coverage plans on the company's earnings call
Tuesday, saying they would disrupt health care and hurt Americans'
relationships with their doctors.
Shares fell 4% Tuesday even after the company raised its profit
guidance for the year and were down another 1.9% Wednesday. The
company's market value has dropped by about $53 billion since
mid-November.
Meanwhile, the Trump administration is exploring whether to
expose the actual cost of care by requiring health-care providers
to publicly disclose secret prices they charge insurance companies
for services. The White House has also proposed banning certain
pharmaceutical-industry rebates in Medicare that would halt
billions of dollars in discounts that drugmakers give insurers and
companies such as CVS Health Corp.
The combination of policy proposals has hammered health-care
stocks, sending the S&P 500 health-care group to its lowest
level in three months. After falling 2% Tuesday, the sector shed
2.9% Wednesday to bring its drop so far this month to 6.6%.
"People don't want the extra risk that goes along with being in
[health-care stocks] right now because of how quickly things can
change, " said JJ Kinahan, chief market strategist at TD
Ameritrade.
The recent rout in health-care stocks comes after the Trump
administration's stance on tariffs swung materials shares and
shares of companies reliant on trade flows with China in recent
months. The world's two largest economies have been negotiating for
months to end their tariff dispute.
Investors have said they are hesitant to wager on such sectors,
particularly when market-leading areas such as technology continue
to surge. Another negative for health-care bulls: Some analysts
consider the group a safer play because of its stable earnings and
relatively hefty dividends.
Assets considered safer have also lagged behind the market this
year as the Federal Reserve's cautious stance on raising interest
rates pushes investors toward riskier options.
The health-care sector's recent woes mark a sharp departure from
2018, when the group climbed 4.7% as the S&P 500 slipped 6.2%.
Bullish investors are hopeful that more upbeat earnings will help
share prices stabilize.
But some analysts are skeptical health-care stocks can quickly
rebound, with many policy debates expected to continue ahead of the
2020 presidential election.
"It's not something I'm rushing to sell if I'm just looking at
the data. Sentiment on the other hand is a problem," said Jeff
Garden, chief investment officer at Lido Advisors. Mr. Garden said
he has been encouraging clients to hedge positions in health-care
stocks using options.
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com
(END) Dow Jones Newswires
April 17, 2019 17:13 ET (21:13 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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