Will Obamacare Woes Impact Health Care Stocks?
Business + Economy

Will Obamacare Woes Impact Health Care Stocks?

iStockphoto/The Fiscal Times

Political embarrassment over Obamacare has not spilled over into the markets yet, but it could if matters continue to worsen.

At this point, the Affordable Care Act, as it is more formally known, remains the law of the land and as such a boon to insurers, drug companies and service providers.


As the second-strongest sector this year on the S&P 500, health-care stocks have been pricing in the ultimately successful implementation of a plan that seeks to provide coverage for millions of uninsured Americans.

But in recent days the plan's flaws have been exposed, from its nearly nonfunctional website to the sticker shock of higher insurance premiums and dropped coverage for those with pre-existing plans.Health-care stocks have gained 32 percent this year, but that surge could be at stake if deeper changes are needed or the program collapses.

"The natural market reaction certainly should be to avoid those health-care stocks that would benefit with a smooth transition to Obamacare," said Art Hogan, managing director at Lazard Capital Markets in New York. "It's hard to tell how long it would take to right the ship, but it could be a bumpy road."

Hogan said service-oriented stocks such as hospitals would take the first hit.

Initial market reaction was muted.

The SPDR Health Care Select Sector exchange-traded fund gained about 0.4 percent in morning action and was in fact the third-best performer of an otherwise uneventful session. 

"Health-care stocks have been driven by getting more bodies into the health-care system. That's a big reason why you've seen outperformance," said Brian Lazorishak, portfolio manager at Chase Investment Counsel in Charlottesville, Va. "If you run into a situation that derails that thesis, you could see potential for downside in stocks that are driven by [patient] volume or driven by an expectation of a pickup in volumes."

Leading names in the Obamacare universe did well Tuesday, with solid performances from Johnson & Johnson, UnitedHealth Group and, in particular, Pfizer.

"To me, this is a political event to begin with," said Keith Springer, president of Springer Investment Advisory in Sacramento, Calif. "The health-care stocks can last forever. They're perpetual."

This article originally appeared in CBNC.

Read more in CBNC:
8 Must-Know Obamacare Facts 
White House Knew Millions Couldn't Keep Help Insurance
GOP to Grill Sebelius on Obamacare