The election of Donald Trump was a shock to the financial markets. This shock has reinvigorated many sectors of the U.S. stock market, but it has also disrupted others.
The sector that has felt this disruption most acutely is the healthcare sector, where uncertainty regarding the future has burrowed in and taken hold.
For years, the Republican-controlled Congress has railed against the Affordable Care Act (ACA), voting to repeal it on multiple occasions. However, none of this had much impact on the healthcare sector because traders knew President Obama would never put his signature to anything that would dismantle his landmark program. With the election of Donald Trump, however, all that has changed.
President-elect Donald Trump has not been shy about his desire to repeal and replace “Obamacare.”
His appointment of Rep. Tom Price — an outspoken critic of the ACA — as his Secretary of Health and Human Services solidified expectations that the days of the ACA as we know it are numbered. Unfortunately, nobody knows what comes next. The desire to repeal the ACA is clear. The details of the plan that will replace the ACA are not.
President-elect Trump himself has been sending mixed messages. He talks about wanting to get rid of the individual mandate and the tax on those who don’t buy health insurance, but he also talks about allowing children to remain on their parents’ plans until they are 26 and prohibiting insurance companies from denying applicants for pre-existing conditions. He talks about removing the medical device tax, but he also talks about reigning in pharmaceutical costs. In fact, he sent biotech stocks plunging in early December when he told TIME magazine “I’m going to bring down drug prices.”
Currently, the big winners in the healthcare sector since the presidential election have been health insurance companies.
Stocks like UnitedHealth Group Inc (NYSE:UNH) have been soaring higher, as investors believe they will be able to generate wider profit margins without the restrictions of the ACA (see Fig. 1).
Fig. 1 — Daily Chart of UnitedHealth Group (UNH)
The big losers since the presidential election have been hospital providers. Stocks like Tenet Healthcare Corp (NYSE:THC) have been dropping as investors worry about the profitability of hospitals if the patients that are currently covered under ACA’s expanded Medicaid plans and individual plans lose that coverage but continue to come to the emergency room (see Fig. 2).
Fig. 2 — Daily Chart of Tenet Healthcare (THC)
This tells us that the sector is not going to move as a monolith, like the financial sector seems to be doing in the aftermath of the election. Traders are diving into each industry group within the sector and are trying to tease out how each one might react to different changes in the healthcare law.
Until the 115th Congress is sworn in on Jan. 3 and President-elect Trump takes the oath of office on Jan. 20, we are not going to know what the details of the “replace” portion of the Republicans’ repeal-and-replace plan are going to look like, which means everyone is going to be doing a lot of guessing … and Wall Street hates guessing.
So long as the market in general remains strong, we expect to see the same industry groups that have been outperforming, and those that have been underperforming, within the sector continue to do so in the coming weeks. However, we wouldn’t be surprised to see some consolidation on their charts as traders wait for more news.
InvestorPlace advisors John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.