Why Health Care Is The Top Sector Of 2017

March 16, 2017

What's the best-performing sector of the year? Health care―but probably not for the reasons you might expect.

Surprisingly, the approaching repeal and replacement of the Affordable Care Act (ACA), popularly known as “Obamacare,” hasn't had much of an impact on the sector at all.

On the surface, that's strange, considering it's the biggest news in health care since ... well, the passage of the ACA in 2010. Now that the controversial law may be repealed and replaced by an equally controversial Republican health care law called the American Health Care Act (AHCA), health care stocks aren't reacting.

Since the unveiling of the AHCA on March 6, the Health Care Select Sector SPDR Fund (XLV) is up 0.6%, not much different than the 0.1% gain for the SPDR S&P 500 ETF (SPY) in the same period.

Year-to-date, the difference is larger. XLV is up 10.2% compared with 6.3% for SPY.

YTD Returns For SPY, XLV

Health Care Bill A Wash For Sector

There are two potential reasons for the market's muted reaction to the GOP bill. For one, given the resistance to the bill from conservatives in the House, moderate Republicans in the Senate and almost all Democrats, it may not pass in its current form.

A health care plan that ultimately garners enough votes to replace Obamacare may look significantly different than the current version of the AHCA, according to analysts.

Secondly, any new health care law―whether it's the current AHCA or something else―may end up being a wash for the sector, as benefits for certain health care industries are offset by costs for others.

 

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