Shares of health-care services companies took another beating Wednesday, as the evolving political climate on health care, including calls for lower drug prices and "Medicare for All" plans, continued to weigh on Wall Street sentiment.
Four of the Dow Jones Industrial Average's
Merck & Co.
and Walgreens Boots Alliance Inc.
The SPDR Health Care Select Sector exchange-traded fund
slumped 2.6% toward a 3-month low, after dropping 2.1% on Tuesday. It was the only SPDR ETF tracking the S&P 500's 11 sectors that was loose ground year to date. In comparison, the S&P 500 index
has climbed 16% this year.
Wednesday's selloff was led by medical-care services company DaVita Inc.
DVA, -7.47% insurer Anthem Inc.
and drug company Alexion Pharmaceuticals Inc.
Health companies have been grappling with investors' reactions to possible changes to the health-policy landscape. Facing political pressure over hefty drug prices and, recently, a new proposal from U.S. Late. Bernie Sanders suggesting a single-payer system, investors are becoming increasingly skittish around an industry once considered a safe haven.
Read : What 'Medicare for All the healthcare sector
Don't miss : Sanders' 'Medicare for All' gets cheers at Fox News town hall
“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, "Brian Tanquilut or Jefferies wrote in a note to clients on Wednesday.
Health insurers like Anthem and peers UnitedHealth, Humana Inc. and Cigna Corp.
have fallen substantially the year to date.
UnitedHealth shares have shed 7% over the past two days despite the company reporting earnings on Tuesday that beat expectations, as investors It seemed nervous about the possibility of Medicare for All becoming a reality. That followed last week's 10.3% drubbing, which was the worst weekly performance in 10 years.
13.8% last week, the largest weekly drop since February 2009.
Health -care facilities and managed care companies could face "temporary downside risk," analysts at JP Morgan said in a Wednesday note to clients. Health-care services company HCA Healthcare Inc.
shares have fallen 11% in the year to date, though Tanquilut or Jefferies called the sell-off “overdone.”
“We will still need hospitals to be viable Even if Medicare for All is enacted, ”he said. "As currently proposed, [Medicare for All] will most likely reduce the need for managed care companies … on the other hand, the need for providers does not go away, so the government will need hospitals, physician practices and others. [health-care] providers to remain secure access to care. ”
Pricing pressures and fears around Medicare for All may also be playing in the declining share prices of drug companies like Merck and Pfizer. Drug manufacturers would have two prices considerably under a single-payer system, Raymond James health-care policy analyst Chris Meekins wrote in a recent note to clients. The single payer – in this case, the government – would have substantial negotiating power and could "claw back patents" if companies refused to pay the government its desired rate, he wrote.
Earlier this month, Walgreens stock plummeted 12% after the company reported second-quarter earnings that missed expectations, while lowering its full-year outlook. At the time, Stefano Pessina's chief executive named "the most difficult quarter we have had since the formation of Walgreens Boots Alliance," citing declining generic drug prices and lower reimbursements from payers.
Rivals CVS Health Corp.
and Rite Aid Corp.
RAD, + 2.33%
have seen their shares fall, with Rite Aid sinking 35% and CVS dropping 20% in the year to date. Shares of Walgreens have declined 20% in the year to date.
"The retail / supply chain complex is very difficult to own … over the near term given the regulatory uncertainty with respect to the [Affordable Care Act]drug pricing, rebates," Jefferies health-care trading desk strategist Jared Holz customs MarketWatch in an email. “On the retail side, trends remain weak on average and Amazon will continue to be a force for the industry to deal with.”