Healthcare stocks could broadly rise significantly post tweet

Healthcare stocks could broadly rise significantly post tweet

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As we gear up for President Trump’s anticipated tweet to usher in our activist President’s jawboning down of drug prices, it’s helpful to remember that many of us have seen a few U.S. healthcare funding revolutions before.  But most money managers really haven’t since their median age is about 37 years old.  In fact, as we will see below, an important healthcare funding revolution occurred in 1983, about the time the median age money manager was teething, rather than tweeting.

As we shall see in this blog, healthcare funding revolutions have occurred before and they have resulted in nice times to invest in healthcare equities broadly.

The 1983 event was President Reagan’s signature on the Social Security Amendments of 1983 (April 20, 1983) which ushered in Diagnosis Related Group (DRG) funding for inpatient hospital services.  DRG’s altered inpatient hospital service services payments, by what is now called the Centers of Medicare and Medicaid Services (CMS), to a defined fixed payment (the DRG) from a pay for service methodology.  DRG’s were implemented and exist today.

Then, on August 31, 1993, President Clinton presented the Health Security Act to Congress, better known as Hillarycare.  Hillarycare was to usher in a single payer system and met with fierce resistance until then Majority Leader George Mitchell pronounced it dead on September 26, 1994.

We compiled the following table (Data from Bloomberg) which shows the performance of the S&P 500 as compared to the Fidelity Select Health Fund (FSPHX) during periods around these two key events.During the DRG introduction (March 1983-June 1984), FSPHX underperformed the S&P 500 by about 1500bp.  But, over the next year, FSPHX outperformed the S&P 500 by about 3000bp.  From March 1983 to June 1985, FSPHX outperformed the S&P 500 by 700bp.

During the Hillarycare debate (December 1992-March 1994), FSPHX underperformed the S&P 500 by about 400bp.  But, over the next year, FSPHX outperformed the S&P 500 by about 700bp.  From December 1992 to March 1995, FSPHX outperformed the S&P 500 by 300bp.

How healthcare stocks will perform after President Trump begins his healthcare tweet (let’s call that Trumpcare) is anyone’s guess, but FSPHX has already underperformed the S&P 500 by 2700bp since mid 2016.  We would not be surprised to see healthcare stocks broadly up significantly one year from now and especially one year post tweet. Keep in mind that past is not necessarily prologue and we offer no buy or sell recommendations on any equities.

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