Health Insurers May Have Bottomed as Investors Tire of Politics

Tatiana Darie
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Health Insurers May Have Bottomed as Investors Tire of Politics

(Bloomberg) -- The worst may be past for managed-care stocks this year, barring any major surprises, as investors are growing fed up with the political rhetoric in Washington, according to Wall Street analysts.

UnitedHealth Group Inc.’s solid third-quarter earnings on Tuesday sparked the sector’s biggest rally in a decade as it helped ease concerns about rising medical costs. While expectations were low heading into the report, the magnitude of the move illustrates just how negative sentiment has gotten. Also roiled by fears of a single-payer system, health insurers appear to have found their footing as investors turned more optimistic about the industry’s business outlook, according to BMO analyst Matthew Borsch.

“Until something significantly new happens, I think we’re sort of stabilized for the moment,” he said in a telephone interview. “Investors are kind of fatigued with the political side of this.”

The S&P 500 Managed Care Index, which has plunged into two corrections this year, has rebounded to its highest level since August. The gauge jumped as much as 7.5% on Tuesday, the most since November 2009. It’s still trading down 4.7% for the year.

Tuesday’s Democratic presidential primary debate will serve as a key test for investors’ renewed optimism. Observers are looking to see whether Senator Elizabeth Warren, who polls show is tied for the lead with former Vice President Joe Biden, will elaborate on her plans for health care. She supports “Medicare-for-All” and has blasted insurers in previous debates, but has remained notably vague on the specifics.

It would be difficult to see a reversal of the rally following the debate as investors are familiar with Democrats’ health-care proposals, according to Borsch. Warren could get pushed for more specifics on her plans, but it’s unlikely that will impact investors’ views, he said. “We know what we know at this point.”

Other analysts are less sanguine. Bloomberg Intelligence’s Glen Losev said he wouldn’t be surprised to see health insurance stocks pull back from Tuesday’s gains after the debates and stay range-bound in the near term. “The Washington overhang remains and will continue” to be there until a Democratic nominee emerges, he said by telephone.

Scott Fidel of Stephens agrees that the sector is not clear of the political uncertainties, saying Tuesday’s rally just reflects investors’ increased comfort with fundamentals.

“The market is still pricing in a lot of uncertainty with these stocks, just not at the extreme levels that we had” heading into UnitedHealth’s earnings, Fidel said.

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