In a year in which U.S. stocks have been roaring higher, it’s been hard to find pockets of the market that are doing poorly. The S&P 500 has surged 16.7% so far in 2019, sitting close to record highs, and each of the 11 stock market sectors is up—except one.
The exception is health care. Measured by the Health Care Select Sector SDPR Fund (XLV), health care slipped 0.26% in the year-to-date period through April 22, lagging far behind each of the other sectors. Utilities, the second-worst-performing sector, gained 9% in the same period, while every other sector was up double digits, including top-performing technology, with a 26.3% return.
Sector Returns
| Ticker | Fund | YTD Return (%) |
| XLK | Technology Select Sector SPDR Fund | 26.25 |
| XLI | Industrial Select Sector SPDR Fund | 21.91 |
| XLE | Energy Select Sector SPDR Fund | 20.57 |
| XLY | Consumer Discretionary Select Sector SPDR Fund | 20.42 |
| XLC | Communication Services Select Sector SPDR Fund | 19.81 |
| SPY | SPDR S&P 500 ETF Trust | 16.65 |
| XLF | Financial Select Sector SPDR Fund | 15.02 |
| XLB | Materials Select Sector SPDR Fund | 14.17 |
| XLRE | Real Estate Select Sector SPDR Fund | 14.01 |
| XLP | Consumer Staples Select Sector SPDR Fund | 12.64 |
| XLU | Utilities Select Sector SPDR Fund | 8.96 |
| XLV | Health Care Select Sector SPDR Fund | -0.26 |
Data measures total returns for the year-to-date period through April 22.
Political Overhang
Health care’s stark underperformance compared with the broader stock market is the worst since 1993, according to Bloomberg. That was the year in which President Clinton tried to push a sweeping health care reform bill through Congress. The bill never became law, but at the time, it raised worries that profits for the health care industry could take a hit.
A similar thing happened in 2010, when the Affordable Care Act, better known as Obamacare, actually became law thanks to Democrats’ control of the presidency and both chambers of Congress. Health care lagged the S&P 500 by 5.3% that year.
Then again in 2016, during a bitter election year in which both leading candidates, Donald Trump and Hillary Clinton, bashed the industry for keeping drug costs too high, health care returned 4.4% less than the market.
Election Cycle Volatility
Clearly, as history suggests, volatility in health-care stocks and ETFs is not unusual in periods around major elections, or when far-reaching health care legislation has the potential to pass.
“Volatility picks up for health care stocks around election cycles as sentiment moves around in reaction to different candidates’ plans for changing the health care sector, especially since health care benefits have been the key topic for voters since 2007,” said Brian Tanquilut, health care analyst at Jefferies.
This year, that volatility has picked up early—more than a year and a half ahead of the U.S. elections— and vigorously, as certain candidates throw their support behind legislation that could completely transform the industry at the expense of health care firms.
Medicare For All
At the forefront of the movement to upend the health care status quo is Senator Bernie Sanders, who unveiled a “Medicare-for-All” bill earlier this month that is also being backed by several other Democratic presidential candidates. Medicare, in its current form, is a national health insurance program for the elderly.
“This proposed piece of legislation would establish a national health insurance program to provide comprehensive protection against the cost of health care and health-related services,” explained Chris Meekins and Joseph Yanchunis, analysts at Raymond James.
In other words, Medicare for all would establish a single-payer, government-run program that would eliminate most private insurance, say the analysts.
