President Donald Trump unveiled his latest budget proposal for fiscal 2021, which begins on Oct 1. The record $4.89-trillion budget proposal seeks to boost funding for defense while cutting down on social and domestic programs like environmental protection and healthcare.
This draft budget has proposed many reductions in spending, hinting at the concern about national debt. The budget blueprint plans for $4.6 trillion in deficit reduction, $4.4 trillion in spending reduction and a 21% cut in foreign aid. Trump's fiscal 2021 plan declares that the government's deficit will top $1 trillion only for the current budget year and then will drop to more manageable levels.
Like many market watchers, we believe that chances of passing of this budget blueprint is less given the divided congress but such a proposal indicates what could happen to the below-mentioned sector ETFs if Trump wins the second term.
Healthcare in a Neutral Spot
The budget proposal lowers spending on Medicaid and subsidies for the Affordable Care Act by trillion dollars. The budget would also reduce the federal share of spending for all Medicaid patients, by tweaking rules about how states can offer additional payments to certain healthcare facilities run by state or federal governments. This is estimated to save about $844 billion in a span of 10 years.
The proposal does not bode well for healthcare providers like HCA Healthcare Inc. (HCA - Free Report) and UnitedHealth Group Incorporated (UNH - Free Report) . At the end of 2018, HCA operated 179 hospitals, comprising 175 general, acute care hospitals, three psychiatric hospitals and one rehabilitation hospital. UnitedHealth also owns several acute-care hospitals.
iShares U.S. Healthcare Providers ETF (IHF - Free Report) measures health maintenance organizations, hospitals, clinics, dentists, opticians, nursing homes rehabilitation and retirement centers. It puts about 22.7% weight in UNH and 4.51% weight in HCA.
But then, health insurers have suffered a lot under ACA due to rising costs. Some health insurers like Aetna and Humana (HUM - Free Report) have exited public exchanges because more severe and expensive patients joined the program. These health insurers’ stocks also have exposure to the fund IHF. So, the latest budget proposal actually leaves a neutral impact on IHF.
Clean Energy in a Losing Position
Trump's fiscal 2021 plan proposes cuts in several programs, including a 26% reduction for the Environmental Protection Agency. Invesco WilderHill Clean Energy ETF (PBW - Free Report) is composed of stocks of companies that are publicly traded in the United States and engaged in the business of advancement of cleaner energy and conservation (read: 2 ETF Areas to Gain From Michael Bloomberg's Campaign).
Defense ETFs in a Decent Place
Trump’s latest budget plan calls for military spending of $740.5 billion, marking a 0.3% increase. Defense ETFs like Invesco Aerospace & Defense Portfolio (PPA - Free Report) , iShares U.S. Aerospace & Defense ETF (ITA - Free Report) and SPDR S&P Aerospace & Defense ETF (XAR - Free Report) are thus expected to perform decently in the coming days. However, only a 0.3% increment suggests that growth in defense spending is probably nearing an end.
Reduction in Safety Net Programs: Trouble for Consumer ETFs?
The Trump administration seeks to lower billions of dollars in government spending toward food stamps and other safety net programs for the poor. Reforming food stamps are expected to save nearly $182 billion over a decade. Lesser federal support for the poor may hurt consumer ETFs like iShares U.S. Consumer Services ETF (IYC - Free Report) and Consumer Staples Select Sector SPDR Fund (XLP - Free Report) .
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 >>