The health care sector is poised for a meaningful rebound in 2024, according to Strategas analysts, who predict it will lead the market after years of regulatory pressures. Chris Verrone,head of macro and technical trading at Strategas,notes that the sector is experiencing a “generational oversold condition,” with it’s weight in the S&P 500 at its lowest in about 25 years. “It’s the place were you’re seeing the biggest price betterment,” Verrone said, highlighting medical device makers like agilent and Abbott Laboratories as notably attractive. Shares of these companies have surged more than 10% in early 2024, while the iShares U.S. Medical Devices ETF (IHI) has gained over 9%.
Health care Outperforms Under Republican Leadership
Table of Contents
Historically, health care stocks have outperformed the broader market during the first year of Republican presidential terms. Since the Reagan governance in 1981, health stocks have gained an average of 7.6%, compared to the S&P 500’s 5.1% gain. Strategas analysts attribute this trend to investors pricing in potential earnings cuts before a new president takes office.”We believe investors price in the potential earnings cuts before the new president takes office and the stocks benefit when the worst-case scenario does not materialize,” they wrote.
Though, the sector has faced headwinds under the Biden administration, particularly for health insurers and hospitals.The S&P Managed Health Care sector posted two consecutive years of negative returns for the first time in 25 years,driven by pressure on Medicare Advantage reimbursement rates.With the Trump administration and a Republican-led Congress now looking to cut federal spending, concerns have shifted to potential Medicaid funding reductions. Proposals include lowering the federal matching rate for Medicaid, which could impact states that expanded coverage under the Affordable Care Act.
Medicaid Insurers and Hospitals Under Pressure
Medicaid-focused insurers like Centene and Molina Health have seen their shares decline since the election, with Molina down nearly 9%. Hospital operators such as HCA Holdings and global Health Services have also slipped, losing 15% and 13%, respectively. Strategas analysts expect moderate Republicans to push back against deep cuts, particularly in states that have expanded Medicaid, including republican-led oklahoma, Missouri, Nebraska, and South Dakota.
Pharmacy Benefit Managers (PBMs) Face scrutiny
The pressure on health care extends to pharmacy benefit managers (PBMs), which have come under bipartisan criticism for their lack of clarity in drug pricing contracts. Major insurers like UnitedHealth Group, CVS Health,Cigna, and Elevance, which also control PBMs, may face continued regulatory challenges. ”Notably, President Trump has indicated that he wants to do something for pharma and the PBMs are in his sights,” Strategas wrote. Industry reforms could be included in Congress’ next continuing resolution bill, due by March 14.
In response to regulatory pressure, UnitedHealth recently announced that its PBM unit woudl pass through all negotiated rebates or discounts to patients by 2028. Despite these challenges,the S&P 500 Managed Care subsector is up nearly 6% year-to-date,signaling cautious optimism for the sector’s recovery.
Key Takeaways
| Sector | Performance highlights |
|————————–|——————————————————————————————-|
| Medical Devices | Agilent and Abbott Laboratories up over 10%; iShares U.S. Medical Devices ETF up 9% YTD |
| health Insurers | S&P Managed Health Care sector posted two consecutive years of negative returns |
| Medicaid Insurers | Centene and Molina Health down since election; Molina shares down nearly 9% |
| Hospitals | HCA Holdings and Universal Health Services down 15% and 13%, respectively |
| PBMs | UnitedHealth, CVS Health, Cigna, and Elevance face bipartisan scrutiny |
As the health care sector navigates regulatory shifts and market dynamics, investors are watching closely for signs of sustained recovery. With medical devices leading the charge and PBMs under the microscope, 2024 could be a pivotal year for the industry.
Health Care Sector Outlook for 2024: Key Insights and Trends
Editor: The health care sector has shown mixed performance in recent years. What are the key trends shaping the industry in 2024?
Guest: The health care sector is indeed navigating a complex landscape in 2024. One of the most notable trends is the strong performance of medical device companies like agilent and Abbott Laboratories, which have seen their shares surge over 10% early this year. Additionally, the iShares U.S. Medical Devices ETF (IHI) has gained more than 9%,signaling investor confidence in this segment.
Editor: Historically, how has the health care sector performed under Republican leadership, and what does this meen for 2024?
Guest: Historically, health care stocks have outperformed the broader market during the first year of Republican presidential terms. As 1981, health stocks have gained an average of 7.6%,compared to the S&P 500’s 5.1% gain. This trend is often attributed to investors pricing in potential earnings cuts before a new president takes office. When the worst-case scenarios don’t materialize, these stocks tend to benefit. However, under the Biden governance, the sector faced headwinds, notably for health insurers and hospitals, due to pressures on Medicare Advantage reimbursement rates.
Editor: What challenges are Medicaid-focused insurers and hospitals facing in 2024?
Guest: Medicaid-focused insurers like Centene and Molina Health have seen their shares decline since the election, with Molina down nearly 9%. Hospital operators such as HCA Holdings and Universal Health Services have also slipped, losing 15% and 13%, respectively.The primary concern is potential Medicaid funding reductions, with proposals to lower the federal matching rate for Medicaid, which could impact states that expanded coverage under the Affordable Care Act.
Editor: How are Pharmacy Benefit Managers (PBMs) being impacted by regulatory scrutiny?
Guest: PBMs have come under bipartisan criticism for their lack of clarity in drug pricing contracts. Major insurers like UnitedHealth Group,CVS Health, Cigna, and Elevance, which also control PBMs, may face continued regulatory challenges. Notably, President Trump has indicated that he wants to address issues related to pharma and PBMs, and industry reforms could be included in Congress’ next continuing resolution bill, due by March 14.
Editor: What are the key takeaways for investors in the health care sector in 2024?
Guest: Here are the key highlights:
| sector | performance Highlights |
|---|---|
| Medical Devices | Agilent and Abbott Laboratories up over 10%; iShares U.S. Medical Devices ETF up 9% YTD |
| Health Insurers | S&P Managed Health Care sector posted two consecutive years of negative returns |
| Medicaid Insurers | Centene and Molina Health down since election; Molina shares down nearly 9% |
| Hospitals | HCA Holdings and Universal Health Services down 15% and 13%, respectively |
| PBMs | UnitedHealth, CVS Health, Cigna, and Elevance face bipartisan scrutiny |
Editor: Thank you for these insights. it’s clear that 2024 will be a pivotal year for the health care sector, with medical devices leading the charge and PBMs under significant scrutiny.
