We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Trumpcare Collapse Fuels Rally in Healthcare Stocks & ETFs
Read MoreHide Full Article
President Donald Trump’s bid to overhaul the U.S. healthcare system, his first major legislative move, failed last week due to lack of support from Congress Republicans. Trump has been unable to secure enough votes to pass the bill for repealing and replacing Obamacare with the American Health Care Act (AHCA), which forced him to abandon the bill.
While the collapse of the bill dented investors’ confidence in Trump’s ability to deliver on his promises, it infused optimism in the healthcare sector. Had AHCA (also known as Trumpcare) come into effect, it could have led to a large number of uninsured Americans (read: Trump Trade Fades: Top and Flop ETFs of Last Week).
According to the latest report from Congressional Budget Office, 14 million people would lose medical insurance in 2018 under a Republican plan to dismantle Obamacare. The number is expected to increase to 24 million after a decade.
Market Impact
While this is an encouraging bit of news for the entire healthcare sector, hospital stocks were the biggest winners. This is especially true as the repeal of the Affordable Care Act, known as Obamacare, has threatened hospitals operating profit by 5-10%, given the expected decline in health insurance coverage, per the analyst at Oppenheimer & Co.
Notably, major hospital stocks - HCA Holdings (HCA - Free Report) , Universal Health Service (UHS - Free Report) , LifePoint Health and Tenet Healthcare (THC - Free Report) – spiked 5.2%, 3.3%, 1.7% and 1.4%, respectively on the day. Medicaid-focused health insurers such as Molina Healthcare (MOH - Free Report) and Centene (CNC - Free Report) also jumped over 2% as the new system posed a threat to the expansion of the Medicaid government health program for low-income Americans. Meanwhile, shares of mental health treatment facilities' operator Acadia Healthcare (ACHC - Free Report) increased 5% (read: Healthcare ETFs in Focus on Obamacare Replacement Plan).
In the ETF world, SPDR S&P Pharmaceuticals ETF XPHwas the showstopper, rising 2.6%. This was followed by gains of 2.5% for BioShares Biotechnology Products Fund BBP, 2.3% for BioShares Biotechnology Clinical Trials Fund (BBC - Free Report) and 2% forALPS Medical Breakthroughs ETF SBIO. Other funds - PowerShares Dynamic Pharmaceuticals Fund (PJP - Free Report) , iShares U.S. Pharmaceuticals ETF IHE,PowerShares Dynamic Biotechnology & Genome Portfolio PBE, and SPDR S&P Biotech ETF (XBI - Free Report) were up at least 1.5% on the day.
What Lies Ahead?
With the failure of Trumpcare, the healthcare sector looks more stable. This might lead to a continued upward trend going ahead. The sector has made a strong comeback this year. The Health Care Select Sector SPDR Fund (XLV - Free Report) returned 8.4% compared with gains of 5% for the broad market fund (SPY - Free Report) . Solid earnings and other positive sector developments in the Trump era are providing enough strength (see: all the Healthcare ETFs here).
In particular, the president promised to reduce federal regulations by 75–80% and streamline the Food & Drug Administration (FDA) approval process. This will potentially make it easier for the biotech and pharma companies to bring new products to the market. Trump’s proposed tax reforms and cash repatriation policy will also act as a catalyst in the coming months.
Further, the sector is poised to benefit from other encouraging trends including the possibility of increased M&A activity, an accelerated pace of innovation, promising drug launches, growing importance of biosimilars, cost-cutting efforts, an aging population, expanding insurance coverage, growing middle class, an insatiable demand for new drugs, and ever-increasing health care spending.
Moreover, the health care ETFs have a Zacks ETF Rank of 3 or ‘Hold’ rating, which indicates room for more upside in the coming months.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Trumpcare Collapse Fuels Rally in Healthcare Stocks & ETFs
President Donald Trump’s bid to overhaul the U.S. healthcare system, his first major legislative move, failed last week due to lack of support from Congress Republicans. Trump has been unable to secure enough votes to pass the bill for repealing and replacing Obamacare with the American Health Care Act (AHCA), which forced him to abandon the bill.
While the collapse of the bill dented investors’ confidence in Trump’s ability to deliver on his promises, it infused optimism in the healthcare sector. Had AHCA (also known as Trumpcare) come into effect, it could have led to a large number of uninsured Americans (read: Trump Trade Fades: Top and Flop ETFs of Last Week).
According to the latest report from Congressional Budget Office, 14 million people would lose medical insurance in 2018 under a Republican plan to dismantle Obamacare. The number is expected to increase to 24 million after a decade.
Market Impact
While this is an encouraging bit of news for the entire healthcare sector, hospital stocks were the biggest winners. This is especially true as the repeal of the Affordable Care Act, known as Obamacare, has threatened hospitals operating profit by 5-10%, given the expected decline in health insurance coverage, per the analyst at Oppenheimer & Co.
Notably, major hospital stocks - HCA Holdings (HCA - Free Report) , Universal Health Service (UHS - Free Report) , LifePoint Health and Tenet Healthcare (THC - Free Report) – spiked 5.2%, 3.3%, 1.7% and 1.4%, respectively on the day. Medicaid-focused health insurers such as Molina Healthcare (MOH - Free Report) and Centene (CNC - Free Report) also jumped over 2% as the new system posed a threat to the expansion of the Medicaid government health program for low-income Americans. Meanwhile, shares of mental health treatment facilities' operator Acadia Healthcare (ACHC - Free Report) increased 5% (read: Healthcare ETFs in Focus on Obamacare Replacement Plan).
In the ETF world, SPDR S&P Pharmaceuticals ETF XPH was the showstopper, rising 2.6%. This was followed by gains of 2.5% for BioShares Biotechnology Products Fund BBP, 2.3% for BioShares Biotechnology Clinical Trials Fund (BBC - Free Report) and 2% forALPS Medical Breakthroughs ETF SBIO. Other funds - PowerShares Dynamic Pharmaceuticals Fund (PJP - Free Report) , iShares U.S. Pharmaceuticals ETF IHE,PowerShares Dynamic Biotechnology & Genome Portfolio PBE, and SPDR S&P Biotech ETF (XBI - Free Report) were up at least 1.5% on the day.
What Lies Ahead?
With the failure of Trumpcare, the healthcare sector looks more stable. This might lead to a continued upward trend going ahead. The sector has made a strong comeback this year. The Health Care Select Sector SPDR Fund (XLV - Free Report) returned 8.4% compared with gains of 5% for the broad market fund (SPY - Free Report) . Solid earnings and other positive sector developments in the Trump era are providing enough strength (see: all the Healthcare ETFs here).
In particular, the president promised to reduce federal regulations by 75–80% and streamline the Food & Drug Administration (FDA) approval process. This will potentially make it easier for the biotech and pharma companies to bring new products to the market. Trump’s proposed tax reforms and cash repatriation policy will also act as a catalyst in the coming months.
Further, the sector is poised to benefit from other encouraging trends including the possibility of increased M&A activity, an accelerated pace of innovation, promising drug launches, growing importance of biosimilars, cost-cutting efforts, an aging population, expanding insurance coverage, growing middle class, an insatiable demand for new drugs, and ever-increasing health care spending.
Moreover, the health care ETFs have a Zacks ETF Rank of 3 or ‘Hold’ rating, which indicates room for more upside in the coming months.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>