Are Healthcare Stocks a Safe Bet under Trump?
U.S. healthcare stocks took a bit of a beating in 2015 and 2016 as uncertainty about the Affordable Care Act (ACA)—otherwise known as Obamacare—continued to flare. But healthcare stocks got some CPR in November 2016 after Donald Trump won the U.S. election. Healthcare stocks have been one of the biggest winners since the election as Trump promised to replace Obamacare, but there have been some hiccups along the way. Are healthcare stocks still a safe bet under President Trump?
On the campaign trail, President Trump called the ACA a disaster and said that if he got into the White House, one of his first mandates would be to replace it with something better.
Investors believed him. After the election, healthcare stocks surged on the expectation that significant parts of Obamacare would be replaced or another more business-friendly healthcare act would be enacted.
“Healthcare” is a broad term that covers many different industries including hospitals, medical devices, rehabilitation, dentistry, drugs, and nursing homes. By mid-March, major exchange traded funds (ETFs) like the Health Care Select Sector SPDR ETF (NYSEArca/XLV) had advanced more than 16% and the iShares US Healthcare Providers (NYSEArca/IHF) were up almost 20%.
All the optimism hinged on Trump getting his own version of Obamacare passed. Some of Trump’s pro-business-friendly healthcare policies include: wanting the Food and Drug Administration (FDA) to expedite drug approvals, cutting funding to the National Institute of Health (NIH) by up to 20%, and reducing barriers to entry for new healthcare companies.
Not all of his policies would be beneficial to all healthcare stocks. If Trump repeals Obamacare in hospitals, it will result in widespread insurance coverage losses; this is bad for hospitals that will now be exposed to bad debt expenses. Trump’s stance on marijuana and reproductive rights could hurt company with expose to medical marijuana products and contraceptive products.
Getting Obamacare repealed, it turns out, is a lot harder than Trump ever envisioned. Trump tabled his American Health Care Act (AHCA) in mid-March, but it was shelved after it became clear that the House didn’t have enough votes for the bill to pass.
On March 25, Trump tweeted, “ObamaCare will explode and we will all get together and piece together a great healthcare plan for THE PEOPLE. Do not worry!” (Source: realDonaldTrump, Twitter.com, March 25, 2017.)
Because of growing uncertainty, the healthcare stock rally took a breather in late March and early April after it looked as though Trump would be unable to pass the AHCA as initially envisioned. In order to get a new healthcare act passed, it appears as though Congress will end up modifying Obamacare rather than replacing it.
Trump’s healthcare plan is intended to reduce barriers to entry for new healthcare companies and create a stronger environment for established health care stocks to flourish. Whether it works out this way or not is yet to be seen.
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