The Other Side of Midterm Election What-IfsSheaff Briefs Editor
With the midterm elections now in the rearview mirror, with no clear “sweep” on either side of the aisle, investors are asking a number of “so now what?” questions. As one Sheaff Brock research partner, Strategas Securities, LLC observed even prior to the midterm election, funding for the National Institutes of Health is unlikely to decrease, which is a positive for life sciences tools companies.
Even though a Texas judge ruled the entire ACA unconstitutional in December, Strategas commented shortly afterwards: “This decision will likely be reversed (it’s still the Roberts Court), but given the high-profile nature of the court decision and the time this court decision will need to be resolved, there could be some uncertainty over a major sector of the US economy.”
Sheaff Brock Managing Director Dave Gilreath notes that since the decision has already been stayed (by the same Texas judge) pending appeal—and might be overruled—the punishment the healthcare stocks have taken might be giving investors a bargain price for a long-term investment. Another potential perk might be that device companies, biotech, and pharmacy stocks currently seem particularly cheap.
In short, the post-midterm election “balance of power” is likely to help Medicaid HMO’s hospitals and some other parts of the healthcare supply chain.
Drug stocks did something surprising for the day post election: they rose, Emma Court observes in MarketWatch. “Pharmaceutical prices are, in fact, one of the few bipartisan issues the new Congress could agree upon,” Court adds wryly. “The new political order should generally benefit generic drugmakers,” she says, yet stocks rose across the pharmaceutical sector. All drug stocks could come under pressure on a bipartisan plan to rein in drug prices, Thomas Franck opines on CNBC.
Teresa Rivas is talking about stocks in general when she sums the post-election situation up neatly in Barron’s: “Investors have one less unknown to deal with.”
In fact, markets historically do well under post-election gridlock. Since 1928, average annual total returns have been +12% during years where a Republican president held office and Congress was mixed (red House/blue Senate, or blue Senate/red House), which has also been one of the best scenarios for equities in the year after the election.
And, when it comes to healthcare stocks in particular, the chart below shows that their performance relative to the S&P 500 “has tracked well with the prospects of divided government.”