Health care stocks show signs of life

  • Health care stocks shed more than 5% last week
  • Sector has been battered amid worries about universal health care
  • Some health care stocks stemmed the bleeding in recent days

Get me this patient’s chart—its price chart—stat!

The S&P 500 (SPX) health care sector lost more than 5% last week, and as of yesterday it was the only one in the red for the year—quite an about-face for the area of the US market that fared best in 2018.

And the calamity that sent the sector to the emergency room?

Medicare for All, an expansion of the federally funded medical insurance program to cover either (literally) everyone or a lot more people than it does right now, is currently being backed by at least three Democratic presidential candidates.1 Basically, this is the latest chapter of the universal health-care saga, as advocates of the plan seek a new way to provide a single-payer system in the US.

Some traders may be gauging whether the recent drubbing in health care stocks was overdone.

Regardless of which side of this debate you come down on, the reality is that Medicare for All would transform the health care industry from top to bottom—hence the pummeling so many of the stocks in the sector have taken recently.

But here’s a quick review of some other realities:

  • The earliest this type of overhaul of the health care system could even begin is after the 2020 presidential election—i.e., sometime in 2021, and likely much later.
  • It would require one of the Democratic candidates advocating Medicare for All to win the presidency.
  • It would also, presumably, require Democratic control of both houses of Congress.

While predicting politics may be even dicier than predicting markets, any one of these outcomes has a lot of uncertainty attached to it, and taken together, they represent one mighty big IF.

Which is why some traders may be getting ready to look more closely at the health-care patient to determine if a band-aid may have been the more appropriate treatment for the Medicare for All news, rather than the head-to-toe body cast the sector received last week.

Humana (HUM), 2/22/19–4/23/19. Humana (HUM) price chart. Putting in a low?

Source: Power E*TRADE

While some bulls seeing potential upside in health care may use sector ETFs, others will look for opportunities in individual stocks. The chart above shows one type of example—a stock that has been in a downtrend but showed evidence of attempting to put in a bottom. Health benefits provider Humana (HUM), which was trading above $330 in November, fell to $225.65 last Wednesday before rebounding the past two days.

Then there are stocks that have stayed relatively healthy during the recent bout of Medicare for All-itis

Johnson & Jonson (JNJ), for example, took a big hit in December but had climbed more than 12% off its lows as of yesterday—a period that contained two estimate-beating earnings reports on January 22 and April 16 (chart below).2 The stock actually gained ground last week, despite the volatility surrounding that second earnings release, and is currently trading a little below a potential breakout/resistance level formed by its march and April highs around $140.

Johnson & Johnson (JNJ), 12/13/18–4/23/19. Johnson & Johnson (JNJ) price chart. Held its ground last week

Source: Power E*TRADE

The health-care debate isn’t over, by any means, and even some traders who expect a rebound in the sector may look for individual stocks to test recent lows before entering. But with the US market nipping at the heels of all-time highs (and the Nasdaq 100 index recently catching its record), traders may be wondering if broad-market momentum will be the pill the helps the health care sector get back in the pink.

Note: Humana (HUM) is currently scheduled to release earnings on May 1.

Market Mover Update: The other shoe dropped for music streamer Spotify (SPOT) yesterday when Amazon (AMZN) confirmed reports that it was launching a free (ad-based) music service.3 After rallying more than 1% last Thursday, SPOT fell more than 4% intraday yesterday before recovering.

Today’s numbers (all times ET): FHFA House Price Index (9 a.m.), New Home Sales (10 a.m.).

Today’s earnings include: Coca-Cola (KO), Fifth Third (FITB), Harley-Davidson (HOG), JetBlue Airways (JBLU), Lockheed Martin (LMT), Procter & Gamble (PG), PulteGroup (PHM), Quest Diagnostics (DGX), Sherwin-Williams (SHW), Twitter (TWTR), Verizon (VZ), eBay (EBAY), Edwards Lifesciences (EW), Meritage Homes (MTH) Snap (SNAP), Teradyne (TER), Texas Instruments (TXN).


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1 "Medicare for All" giving health-care industry stocks the chills. 4/17/19.

2 StreetInsider. Johnson & Jonson (JNJ) Earnings. 4/22/19.

3 Amazon and Google Are Making Music Free — And That Could Be a Big Headache for Spotify. 4/22/19.

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