Following Tuesday’s mid-term elections, Republicans have an expanded majority in the House of Representatives and their first majority in the Senate in eight years.
As expected, stocks are rallying on news of the Republican triumphant and, also as expected, that includes medical device makers and the corresponding exchange traded funds. Shares of the iShares U.S. Medical Devices ETF (NYSEArca: IHI) are up two-thirds of a percent today and earlier hit a new all-time high.
The SPDR S&P Health Care Equipment ETF (NYSEArca: XHE), an equal-weight rival to the cap-weighted IHI, is up 0.7%, extending its one-month rally north of 6%. IHI is up 4.3% over the past month.
Although IHI and XHE are trading higher Wednesday, the moves are occurring on light volume, which could be a sign that investors are not convinced dissolving the Affordable Care Act, previously seen as a catalyst for IHI and XHE, is something the Republicans can really pull off. Some Republican leaders have already noted repealing Obamacare will not even be attempted unless their party can craft a credible alternative. [Medical Device ETFs Eye Mid-Term Elections]
In the cases of IHI and XHE, Obamacare itself does not necessarily need to be scrapped, but investors in these ETFs and in the stocks held by the funds are likely to have no tolerance for the Republicans not taking action, and doing so soon, on scrapping the punitive tax on medical device makers included in Obamacare.
“No matter which party prevails in the Senate race, Obamacare’s medical device tax is another ripe target for dispute and an area of greater possibility for change. Currently, medical device manufacturers or importers must pay a 2.3% tax on the sale price of taxable devices, such as heart defibrillators,2 and they have placed increasing pressure on Republicans to alleviate this tax burden,” said State Street Vice President and Head of Research Dave Mazza in a research note published prior to the election.