The healthcare sector is poised to rebound this year and lead the market, in part because some of the market’s biggest players have been battered by regulatory concerns over the past two years, according to analysts at Strategas. It is said that there is. “Healthcare’s weight in the S&P is at its lowest level in nearly 25 years, meaning it has been oversold for a generation,” said Head of Macro and Technical Trading at Strategas. explained Chris Bellone, adding that he was looking at medical device manufacturers. Currently ranked among the most attractive stocks. “This is where we’re going to see the biggest price improvement. The names that come to mind are Agilent and Abbott, but we’re starting to see hints of life,” he said. Both stocks have risen more than 10% in the first few weeks of the year, with the iShares U.S. Medical Devices ETF (IHI) up more than 9%. IHI YTD Mountain iShares US Medical Device ETF Year-to-date. Health care outperforms under Republican administration As the Trump administration and Republican-led Congress seek to reduce federal spending, changes in the regulatory environment are weighing most heavily on life sciences, hospitals and health insurance companies, which have the highest use of Medicaid. However, these same subsectors tend to outperform the overall market during the first years of Republican presidential terms, dating back to the first Reagan administration in 1981. During this period, medical stocks rose an average of 7.6%, compared to an average gain of 5.1%. % of the S&P 500 index, Strategas analysts wrote in a note to clients. “Investors have priced in the possibility of profit cuts before a new president takes office, and we believe stocks will benefit if the worst-case scenario does not materialize,” they wrote. Health insurer overhang could be fixed Large health insurers were the worst performers in the sector, with S&P Managed Healthcare reporting two consecutive years of negative earnings for the first time in a quarter century. Under the Biden administration, insurers faced increased pressure on Medicare Advantage reimbursement rates. The current concern is that President Trump’s White House and Congress are considering cutting funding to the Medicaid safety net program in order to extend $4 trillion in tax reserves that are set to expire under the 2017 tax cuts. It’s about being there. Medicaid insurers Centene and Molina Health have both seen their stock prices decline since President Trump was elected, with Molina shares down nearly 9%. Hospital operators such as HCA Holdings and Universal Health Services have fallen nearly 15% and 13%, respectively, since the election. Proposed Medicaid cuts include reductions in the federal matching rate for joint federal-state programs, including reducing the Affordable Care Rate for states that expand Medicaid to low-income individuals above the poverty level. This also includes strengthening matching based on the Japanese Standards Act. Analysts at Strategas predict that “moderate Republicans will try to water down the cuts,” and states that have taken advantage of Medicaid expansion will push back. Over the past five years, seven states have joined the group, including Republican-led Oklahoma, Missouri, Nebraska and South Dakota. Big PBMs may still face pressure Pressure may not ease much for large insurers that also control the pharmacy benefits management sector, such as UnitedHealth Group, CVS Health, Cigna, and Elevance. There is sex. PBMs have faced bipartisan criticism for a lack of transparency regarding drug pricing contracts. “Remarkably, President Trump has indicated he wants to do something for the pharmaceutical industry, and he has PBMs on the horizon,” Strategas wrote, adding that industry reform will be included in Congress’ next continuing resolution. It added that the bill could be passed and must be passed by March 14. Parent companies of major PBMs deny that they are responsible for soaring drug prices, but their business models are changing under regulatory pressure. Earlier this month, UnitedHealth announced that its PBM division would pass through all rebates or discounts negotiated with patients on all contracts by 2028. The S&P 500’s managed care subsector is up nearly 6% since the beginning of the year.
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Strategas expects healthcare to outperform in 2025
By Reid Novak
