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By Amrith Ramkumar
Health-care stocks are trailing the broader market by a historic margin early in 2019, the latest example of how political shifts have buffeted certain sectors.
With another slide Wednesday, the S&P 500 health-care sector is now down 0.9% for the year, compared with a 16% advance for the broader index. If that gap holds through the end of the month, it would mark just the second time since 2000 that an S&P 500 sector has lagged behind by a margin that big in the first four months of the year, according to Dow Jones Market Data.
The largest deficit for health-care stocks previously through April was 7.6 percentage points in 2010. The group is on track to be the index's worst-performing sector at the end of April for the first time since 2006.
Its latest declines have been sparked by a number of signs that politicians on both sides of the aisle are vying for tighter regulations ahead of the 2020 presidential election.
"We've had periods in the past where this has happened, but the intensity and the number of issues that are on the table are more than I've seen in multiple years now," said Ana Gupte, a senior health-care analyst at SVB Leerink.
Insurers have been among the market's worst performers lately amid uncertainty about the future of U.S. health-care policy. So far this year, Cigna Corp. shares are down 23%, while shares of Humana have fallen 19% and UnitedHealth Group Inc., the nation's largest health insurer, has lost 13%.
Democrats in Congress have unveiled plans for a new federally financed health system that would expand Medicare to everyone and overhaul the Affordable Care Act. UnitedHealth Chief Executive David Wichmann argued against so-called Medicare for All and other broad government-coverage plans on the company's earnings call Tuesday, saying they would disrupt health care and hurt Americans' relationships with their doctors.
Shares fell 4% Tuesday even after the company raised its profit guidance for the year and were down another 1.9% Wednesday. The company's market value has dropped by about $53 billion since mid-November.
Meanwhile, the Trump administration is exploring whether to expose the actual cost of care by requiring health-care providers to publicly disclose secret prices they charge insurance companies for services. The White House has also proposed banning certain pharmaceutical-industry rebates in Medicare that would halt billions of dollars in discounts that drugmakers give insurers and companies such as CVS Health Corp.
The combination of policy proposals has hammered health-care stocks, sending the S&P 500 health-care group to its lowest level in three months. After falling 2% Tuesday, the sector shed 2.9% Wednesday to bring its drop so far this month to 6.6%.
"People don't want the extra risk that goes along with being in [health-care stocks] right now because of how quickly things can change, " said JJ Kinahan, chief market strategist at TD Ameritrade.
The recent rout in health-care stocks comes after the Trump administration's stance on tariffs swung materials shares and shares of companies reliant on trade flows with China in recent months. The world's two largest economies have been negotiating for months to end their tariff dispute.
Investors have said they are hesitant to wager on such sectors, particularly when market-leading areas such as technology continue to surge. Another negative for health-care bulls: Some analysts consider the group a safer play because of its stable earnings and relatively hefty dividends.
Assets considered safer have also lagged behind the market this year as the Federal Reserve's cautious stance on raising interest rates pushes investors toward riskier options.
The health-care sector's recent woes mark a sharp departure from 2018, when the group climbed 4.7% as the S&P 500 slipped 6.2%. Bullish investors are hopeful that more upbeat earnings will help share prices stabilize.
But some analysts are skeptical health-care stocks can quickly rebound, with many policy debates expected to continue ahead of the 2020 presidential election.
"It's not something I'm rushing to sell if I'm just looking at the data. Sentiment on the other hand is a problem," said Jeff Garden, chief investment officer at Lido Advisors. Mr. Garden said he has been encouraging clients to hedge positions in health-care stocks using options.
Write to Amrith Ramkumar at email@example.com
(END) Dow Jones Newswires
April 17, 2019 17:13 ET (21:13 GMT)
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