Buy Low, Sell High: Healthcare Stocks Down, Impacts Medical Devices, Biotech and Pharma Shares

Stock arrow down on top of stacks of coins

Possibly in response to a trend for Medicare-for-All initiatives, healthcare stocks plunged this week. This largely affected companies like UnitedHealth, which fell 3.2%, Anthem, dropping by 6.8%, and Cigna Corp., sliding 5.1%. Hospital corporations didn’t fare well either, with HCA Healthcare dropping 3%, eventually dropping 9.9%, and Community Health Systems losing 5.5%.

The impact didn’t leave some big pharma stocks untouched, either. Both Pfizer, Inc. and Merck & Co. dropped about 1%. They were last year’s biggest gainers.

Bloomberg notes, “About $150 billion of market value was erased from companies in the S&P 500 Health Care Index in the four days through Thursday, when markets closed for the holiday weekend. The 4.4% decline left the gauge trading around the lowest level since Jan. 3.”

Although biopharma companies were affected, the SPDR S&P Biotech ETF was still up 18% for the year through Wednesday.

Much of the drop appears related to UnitedHealth Group’s chief executive officer David Wichmann criticizing a number of proposals for Medicare for All being floated by Democratic presidential hopefuls. Wichmann argued that the proposals would destabilize the country’s healthcare system.

Wichmann indicated that he would prefer universal coverage by expanding existing private and public programs, which isn’t particularly surprising, given how a Medicare for All policy scheme would affect UnitedHealth Group. UnitedHealth Group is the country’s largest health insurer as well as Minnesota’s largest company.

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In fact, Bloomberg points out that UnitedHealth is almost as large as Medicare. It offers health insurance to 49.7 million people, and in 2018, reported revenue of $225.2 billion. In addition to insurance, it operates medical practices, offers consulting and data services, and administers drug benefits. Its private-sector versions of Medicare and Medicaid cover millions of people.

“The wholesale disruption of American health care being discussed,” he stated, “would surely jeopardize the relationship people have with their doctors, destabilize the nation’s health system and limit the ability of clinicians to practice medicine at their best. And the inherent cost burden would surely have a severe impact on the economy and jobs, all without fundamentally increasing access to care.”

Evercore ISI analyst Michael Newshel, commenting on the healthcare stock drops, noted that, “Presidential primary politics” are “more in focus than fundamentals.”

Bloomberg noted that the healthcare drop had “started to bleed into the broader space, hitting medical devices, biotech and pharmaceutical shares.”

The S&P 500 Health Care Equipment Index dropped 4.3%. The Nasdaq Biotech Index fell 4.5%. And along with Pfizer and Merck, Allergan dropped 5.4%.

Senator Bernie Sanders (I-Vermont), while discussing his Medicare for All program at a Fox News town hall in Bethlehem, Pennsylvania on Monday, took aim specifically at UnitedHealth. And when Fox anchor Bret Baier asked the audience if they would be interested in transitioning to a government-run system from their private insurance plans, the question was met with cheers and raised hands. Also, perhaps, not surprising, given that it was a Bernie Sanders town hall audience.

Of course, the week also included a significant amount of political uncertainty with Thursday’s release of the redacted version of the long-awaited Mueller investigation report on Russian influence, Trump campaign conspiracy and possible obstruction of justice. It wasn’t clear, and probably still isn’t, just how much of an effect that had on the overall stock market. Charles Gabriel and Ian Katz of Capital Alpha Partners wrote in a note to clients, “Stormy weather may resume” for the recovering stock market, “if the report seems more provocative than Barr initially characterized in his four-page memo to Congress.”

But the S&P 500 and Dow Jones Industrial Average remained largely steady, gaining 0.2% and 0.4%, respectively.

Still, the bigger influence, at least this week, appeared to be the Medicare for All debates.

Michael Yee, an analyst with Jefferies, wrote in a note, “Clearly, huge stock impacts to HCA and managed care can’t be ignored and ‘collateral damage’ to sub-sectors like biopharma in the following days are reflective of a view that mutual funds are drawing down and souring.”

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