Chart to Watch: Healthcare valuations drop following Trump’s RFK Jr. pick
News that president-elect Donald Trump would seek to appoint Robert F. Kennedy (RFK) Jr. to lead the U.S. Department of Health and Human Services (HHS) is weighing on healthcare stocks, particularly biopharma companies. In the wake of the U.S. election, the healthcare sector is down 6% and biotech stocks are down 8% versus the S&P 500® Index.* The slide – which can be attributed to RFK Jr.’s controversial stance on healthcare policy – has healthcare valuations sitting at a discount relative to the broader market.
1 minute read
Key takeaways:
- RFK Jr., known for questioning the effectiveness of vaccines and wanting to divert resources from the National Institute of Health and the U.S. Food and Drug Administration (FDA), could be the next leader of the HHS. Trump’s appointment of RFK Jr. has widened the range of potential outcomes for the healthcare industry and created uncertainty for the market, resulting in near-term volatility.
- Investors should expect volatility to continue, especially if the appointment comes to fruition. However, RFK Jr.’s appointment is still subject to confirmation in the Senate (which is far from guaranteed), and we note that the reality of policy rarely matches campaign rhetoric.
- As investors await clarity, market moves could create buying opportunities for experienced healthcare investors, particularly given innovation from the sector continues to enhance the quality of patient care.
Source: Bloomberg, as of 22 November 2024.
We expect the volatility triggered by the news of RFK Jr.’s appointment to continue, but valuations versus the broader market are approaching some of the most attractive we’ve seen in the past 15 years. We view this as a unique opportunity to invest in healthcare and are carefully assessing buying opportunities. Ultimately, we believe a fundamental focus on innovation – a major theme driving growth in the sector – should be rewarded, regardless of the political backdrop.
– Andy Acker, CFA, Portfolio Manager
1Bloomberg, 6 November to 22 November 2024. Returns for the S&P 500 Index (3.3%), S&P 500 Health Care Sector (-2.5%), and NASDAQ Biotechnology Index (-4.8%).
NASDAQ Biotechnology Index is a stock market index made up of securities of NASDAQ-listed companies classified according to the Industry Classification Benchmark as either the Biotechnology or the Pharmaceutical industry.
Price-to-Earnings (P/E) Ratio measures share price compared to earnings per share for a stock or stocks in a portfolio.
Volatility measures risk using the dispersion of returns for a given investment.
S&P 500® Index reflects U.S. large-cap equity performance and represents broad U.S. equity market performance.
IMPORTANT INFORMATION
Equity securities are subject to risks including market risk. Returns will fluctuate in response to issuer, political and economic developments.
Health care industries are subject to government regulation and reimbursement rates, as well as government approval of products and services, which could have a significant effect on price and availability, and can be significantly affected by rapid obsolescence and patent expirations.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
There is no guarantee that past trends will continue, or forecasts will be realised.
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Specific risks
- Shares/Units can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
- Shares of small and mid-size companies can be more volatile than shares of larger companies, and at times it may be difficult to value or to sell shares at desired times and prices, increasing the risk of losses.
- If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
- The Fund is focused towards particular industries or investment themes and may be heavily impacted by factors such as changes in government regulation, increased price competition, technological advancements and other adverse events.
- The Fund may use derivatives to help achieve its investment objective. This can result in leverage (higher levels of debt), which can magnify an investment outcome. Gains or losses to the Fund may therefore be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
- If the Fund holds assets in currencies other than the base currency of the Fund, or you invest in a share/unit class of a different currency to the Fund (unless hedged, i.e. mitigated by taking an offsetting position in a related security), the value of your investment may be impacted by changes in exchange rates.
- When the Fund, or a share/unit class, seeks to mitigate exchange rate movements of a currency relative to the base currency (hedge), the hedging strategy itself may positively or negatively impact the value of the Fund due to differences in short-term interest rates between the currencies.
- Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
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- The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.
Specific risks
1 minute read
Key takeaways:
- RFK Jr., known for questioning the effectiveness of vaccines and wanting to divert resources from the National Institute of Health and the U.S. Food and Drug Administration (FDA), could be the next leader of the HHS. Trump’s appointment of RFK Jr. has widened the range of potential outcomes for the healthcare industry and created uncertainty for the market, resulting in near-term volatility.
- Investors should expect volatility to continue, especially if the appointment comes to fruition. However, RFK Jr.’s appointment is still subject to confirmation in the Senate (which is far from guaranteed), and we note that the reality of policy rarely matches campaign rhetoric.
- As investors await clarity, market moves could create buying opportunities for experienced healthcare investors, particularly given innovation from the sector continues to enhance the quality of patient care.
