Health care debate hobbles stock in drugmakers, insurers
While much of the stock market sprints ahead powered by economic gains and investor confidence, the health care sector is limping behind.
Drugmakers and health insurers have been on the defensive most of the year as politicians criticize the high cost of prescription drugs and medical care. The issue is acting like an anchor for their share prices, especially heading into an election cycle where health care costs will be a key topic.
“The market right now is trying to be a little bit safe rather than sorry,” said Scott Wren, senior global equity strategist at Wells Fargo Investment Group.
The sector is down 2.7% for the year while the broader S&P 500 index has gained 15%. Technology stocks are the clear leaders, with a 23% gain. Even the lagging materials sector is far outpacing health care at 8.4%.
During testimony to the Senate Finance Committee in April, executives from the nation’s biggest pharmacy benefit managers were accused of “gouging” customers by charging more than the prices negotiated with drugmakers. In February, senators chastised drug company executives over drug prices.
UnitedHealth Group CEO David Scott Wichmann has warned investors that proposals to rein in drug prices “would surely jeopardize the relationship people have with their doctors” and “destabilize the nation’s health system.”
The beginning of the 2020 election cycle has added to calls for changes in the health insurance industry, including proposals for universal coverage that would undercut private insurers. Presidential candidate Bernie Sanders is proposing a “Medicare for All” plan.
Although analysts don’t expect any drastic changes soon, the image of Congress grilling health care executives has raised uncertainty around the sector. And, the issue of the high cost of health care isn’t going away.
Despite the weak stock performance so far this year, the health care sector had a solid first quarter. Earnings growth is projected to finish off at about 9%, while the broader S&P is expected to contract slightly.
The S&P 500 earnings are expected to contract again in the second quarter, while health care is expected to post 2.7% growth, with health insurers topping the list of gainers.