Here's Why Healthcare ETFs Are Rallying Post Elections

Wall Street is showing strong optimism post elections even as the results to the presidential race remain unclear. Notably, the Dow Jones Industrial Average has increased 7.1% week to date. Moreover, the other two major indices, the S&P 500 and Nasdaq, have surged around 7.4% and 9%, respectively, over the same time period. In fact, all major indices are on pace for their biggest weekly increase since April. Going on, considering the gains on Nov 5, it was for the first time since 1982 that the Dow and S&P 500 increased at least 1% in four consecutive sessions.

Leading the market rally on the day after the U.S. elections were health insurers, pharmaceutical companies and medical device stocks as chances of a “blue wave” look dim. In fact, the S&P Supercomposite Managed Health Care Index, which is a benchmark of insurers, surged to a record high and biotechs saw the biggest rise since March. Biogen Inc., Eli Lilly & Co., Cigna Corp, Anthem Inc. and UnitedHealth Group Inc. were the top five gainers on Nov 4.

Let’s take a look at the factors that are driving the healthcare sector post elections.

Factors Behind Healthcare Sector Optimism

In the current scenario, chances of a divided Congress seem more likely where Republicans can continue to control the Senate and Democrats the House. As a result of this political gridlock, major and stringent changes in the health care sector and the corporate tax policies will be very difficult to implement. Thus, easing worries regarding major policy changes largely drove the relief rally in the healthcare and biotech spaces.

Commenting on the current situation, Spencer Perlman, an analyst at Veda Partners, has said that a Republican Senate means "the public option and direct government negotiation on drug prices are dead for at least the next two years," per an Axios article. Going on, Asad Haider, a Goldman analyst, has said that divided government is a positive for managed-care players as they will be exposed to decreased threats of a “large progressive public option” or a corporate tax increase, per a Bloomberg article.

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