“A Big F-ing Deal”

After Monday night’s announcement from the Centers for Medicare and Medicaid Services (CMS) that 2025 payment rates for Medicare Advantage plans would effectively be equal to a 0.16% decline relative to this year, managed care stocks plummeted in after-hours trading and into the trading session on Tuesday. By the time the closing bell rang on Tuesday, the S&P 500 Managed Care sub-industry fell more than 6.5% compared to the S&P 500’s decline of less than 1%. On a relative basis, managed care stocks underperformed the S&P 500 by 5.6 percentage points for the day. As shown in the chart below, today’s underperformance of the industry relative to the S&P 500 was one of the largest since the Affordable Care Act was signed into law on 3/23/10.

Tuesday’s weakness in managed care stocks is hardly the beginning of a new trend. Since hitting a peak in late October 2022, just as the broader bull market was getting started, the managed care industry has been moving in the opposite direction.Just this year, as the S&P 500 has essentially closed at 52-week highs multiple times per week, the managed care industry is right near 52-week lows.

We can’t think of a better way to illustrate the inverse correlation of managed care stocks relative to the S&P 500 over the last 18 months or so than the chart below. While it has been 370 trading days since the S&P 500’s bear market low in October 2022, the managed care sub-industry has gone 355 trading days without trading at a 52-week high, which is the longest such streak since the ACA was signed into law.  As then Vice President Biden “whispered” to President Obama at the time, “This is a big F____ing deal.”

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Disclaimer: Bespoke Investment Group, LLC believes all information contained in this report to be accurate, but we do not guarantee its accuracy. None of the information in this report or any ...

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