It’s loss was modest, but the healthcare sector was the only sector to finish 2016 in the red, meaning the Health Care Select Sector SPDR (NYSEArca: XLV) notched its first annual loss since 2008. That means plenty of eyes will be on XLV and rival healthcare exchange traded funds in 2017.
Healthcare ETFs are deteriorating as a Donald Trump presidency leaves the future of the Affordable Care Act, or so-called Obamacare, in question. Healthcare watchers see a murkier future for the sector as president-elect Trump’s vague statements on health policy have left people guessing where the federal health law will go from here, CNN Money reports.
Among the most vulnerable to a shake up in the status quo, the hospital industry could be among the worst hit from the proposed changes, which could cause millions to lose health coverage. Looking at ETF options, the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF) would be among the worst off in case of a sell off in the health industry.
Meanwhile, the pharmaceutical and biotechnology sub-sectors may benefit under a Republican president and Congress as the industries are less at risk of price controls that Democrats vowed to impose. Drug pricing has not be mentioned on the health agenda outlined on Trump’s transition website.
“However, based on the chart of the Health Care Select Sector SPDR Fund (XLV), it appears as though the bears will dominate the momentum for the foreseeable future. As you can see below, notice how the price is currently trading near the resistance of its 200-day moving average,” according to Investopedia.
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.
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.
“Furthermore, bearish traders will also use the crossover between the 50-day and 200-day moving averages, known as a death cross, to signal the beginning of a long-term downtrend. From a risk management perspective, bearish traders will likely be looking to establish a position near current levels because the combined support and long-term sell signal offer one of the most lucrative risk-to-reward ratios of the year,” according to Investopedia.
For more information on the healthcare sector, visit our healthcare category.