Nearly 10 months into the year, many investors by now that healthcare exchange traded funds such as the Vanguard Health Care ETF (NYSEArca: VHT) and the Health Care Select Sector SPDR (NYSEArca: XLV) have been duds relative to recent annual performances.
Political posturing has been weighing on the S&P 500’s third-largest sector weight, sending biotechnology and some specialty pharmaceuticals stocks tumbling.
In August, Democratic presidential nominee, Hillary Clinton, put the spotlight on Mylan (NasdaqGS: MYL) EpiPen prices, triggering a selloff in biotech exchange traded funds and reminding investors of political risks in an election season. Here comments were particularly painful for ETFs such as the iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB) and the SPDR S&P Biotech ETF (NYSEArca: XBI).
This was the third time over the past year that Clinton’s comments upended drug stocks. The presidential runner has repeatedly censured aggressive drug pricing. With most polls giving her a wide margin over Republican nominee Donald Trump, the markets are taking Clinton’s words more seriously.
SEE MORE: Clinton Delivers Poison Pill To Biotech ETFs
The technical prognosis is not encouraging for ETFs such as XLV.
“Within the Health Care ETF, some of the biggest stocks by market capitalization, including Johnson & Johnson (JNJ) and Pfizer (PFE), show clear peaks and reversals in July. Pfizer, for example, jumped out of a trading range to new 12-year highs on news that it was acquiring a gene therapy company (see Chart 2). However, the next day it fell sharply after announcing better-than-expected second-quarter results — a bearish signal,” reports Michael for Barron’s.
For XLV and rival healthcare ETFs, the good news is that the U.S. economy moving into the late-cycle phase, overall growth may slow and signs of an economic slowdown could pop up. Consequently, investors may also turn to defensive sectors that are less economically sensitive, such as health care.
Both Democratic presidential front runner Hillary Clinton and GOP hopeful Donald Trump support the right for the government to negotiate Medicare drug costs. Additionally, Clinton has previously stated she would tackle “price gouging” from drugmakers if she is elected.
Related: Healthcare ETFs Ready to Rally
“The bottom line is that health care is not the same sector it was when it was leading the market higher. It’s now the weakest sector in 2016, and fresh breakdowns suggest it will remain that way,” according to Barron’s.
For more information on the biotech sector, visit our biotechnology category.