The post-election bounce in diversified healthcare exchange traded funds, including the Vanguard Health Care ETF (NYSEArca: VHT) and the Health Care Select Sector SPDR (NYSEArca: XLV), is not surprising.
After all, the healthcare sector, the second-largest sector weight in the S&P 500, has been a laggard this year primarily because few if any so-called experts forecast Republican Donald Trump defeating Democrat Hillary Clinton to become the 45th U.S. president.
It was Clinton’s harsh rhetoric against high pharmaceuticals prices and often sizable leads over Trump in various polls that were burdens for healthcare stocks and ETFs for much of this year.
SEE MORE: Clinton Delivers Poison Pill To Biotech ETFs
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.
[related_stories]Still, some risks linger for the healthcare sector.
XLV “is trading near a significant level of support/resistance. The recent increase in selling volume along with recent close below the dotted trendline and the 200-day moving average suggests that the bears are in control of the momentum. At this point, traders will continue to keep an eye on this chart because the 50-day moving average has started to trend downward and a cross below the 200-day moving average near $70.07 will likely signal the beginning of a long-term downtrend,” according to Investopedia.
The overall pharmaceutical industry has also taken a greater interest in so-called orphan drugs due to their strong protection, which helps support reliable pricing power, especially as the industry faces questions over high pricing over primary care products.
Related: Healthcare ETFs Ready to Rally
The impact of a Trump presidency on healthcare stocks remains to be seen. Candidate Trump rebuked Obamacare and if successful in that effort, there would likely be some effect on diversified healthcare ETFs due to their exposure to health insurance providers.
“Volatility surrounding the U.S. election has caused health care investors to become concerned about what the future outlook for the sector. Many have started to allocate capital to other areas of the market and the shift in the long-term uptrend is clearly evident,” adds Investopedia.
Health Care Select Sector SPDR
