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In the Market - October 2009
Oct 15, 2009
Health Care History
After Financials, Health Care is the industry that has been in focus for much of the last year. In trying to forecast the impact of potential health care reform, history may be a good guide. 17 years ago, Hillary Clinton headed up the task force that tried to pass health care reform through congress and the political landscape was very similar to today.
The top chart below shows the normalized price movements of the S&P 500 and the industry groups corresponding to the health care providers and pharmaceuticals from the time of the 1992 election through following 3 years. The bottom chart shows the corresponding period since the 2008 election. While there are differences between the two periods, such as the financial turmoil leading into the recent election and beyond, many similarities exist. In both cases, you can see in the first 6 months following the election that the health care sector stocks seem to track each other well, but diverged as the health care bill neared introduction to congress. In early 1993, the heath care stocks lagged the market considerably. After those first 6 months, the health care sector and the pharmaceutical sector start to diverge. This corresponds to the greater awareness of information on both health care plans. The health care provider industry group starts to see large gains while the pharmaceutical group tracks or slightly lags the market. This is where we are currently, with strong expectations for health care providers under the proposed public plan, yet lower opportunities for pharmaceuticals and biotech.
When it became known that the Clinton plan would fail, the spread began moving back. And with the republicans gaining control of congress and a democratic president, the ensuing gridlock was the final impetus to moving the health care and pharmaceutical industry groups to pre health care proposal levels. While there is still uncertainty how the health care bill will play out this time, there is the potential for a similar outcome. And while we still are a year away from midterm elections, the potential for gridlock is high and this traditionally bullish sign could be the kicker.