Post-Midterm Election So-Now-What Questions on Healthcare StocksAdvice to the Advisor
Now that the November 6 midterm elections are in the rearview mirror, having resulted in no clear “sweep” on either side of the aisle, investors are asking a number of “so now what?” questions. Well, as one Sheaff Brock research partner, Strategas Securities, LLC, observes, funding for the National Institutes of Health is unlikely to decrease, which is a positive for life sciences tools companies.
Even though a Texas judge ruled the entire ACA unconstitutional in December, Strategas commented shortly afterwards: “This decision will likely be reversed (it’s still the Roberts Court), but given the high-profile nature of the court decision and the time this court decision will need to be resolved, there could be some uncertainty over a major sector of the US economy.”
Sheaff Brock Managing Director Dave Gilreath notes that since the decision has already been stayed (by the same Texas judge) pending appeal—and might be overruled—the punishment the healthcare stocks have taken might be giving investors a bargain price for a long-term investment. Another potential perk might be that device companies, biotech, and pharmacy stocks currently seem particularly cheap.
In short, the post-midterm election “balance of power” is likely to help Medicaid HMOs’ hospitals and other parts of the healthcare supply chain.
“Pharmaceutical prices are, in fact, one of the few bipartisan issues the new Congress could agree upon,” Emma Court observes in MarketWatch, adding that “The new political order should generally benefit generic drugmakers.” Still, all drug stocks could come under pressure on a bipartisan plan to rein in drug prices, Thomas Franck opines on CNBC.
Teresa Rivas is referring to stocks in general when she sums the post-election situation up neatly in Barron’s: “Investors have one less unknown to deal with.”
In fact, markets historically do well under post-election gridlock. Since 1928, average annual total returns have been +12% during years where a Republican president held office and Congress was mixed (red House/blue Senate, or blue Senate/red House), which has also been one of the best scenarios for equities in the year after the election.
When it comes to healthcare stocks in particular, the chart below shows that their performance relative to the S&P 500 “has tracked well with the prospects of divided government.”