Big Super Tuesday for Sanders May Spell Trouble for Health Care Companies

(Bloomberg) -- The carnage that has wiped out more than $420 billion in value from the closely watched S&P 500 Health Care Index over the past six sessions may see another bout of volatility on Tuesday as Wall Street braces for a key milestone on the path to the U.S. presidential election.

Tomorrow's Super Tuesday, a day where Democrats in 14 states vote in the single biggest day of balloting, could cement Bernie Sanders's position as the front-runner for the nomination. The Vermont senator's potential ascendancy is something Wall Street analysts warn could bring further pain to health companies across the sector, from drug developers to hospital operators.

Sanders's wide-ranging health-care proposals are seen by Wall Street as negative for growth and range from his single payer Medicare-for-All to a number of sweeping plans to bring down the price of drugs.

“An under-appreciated side effect of the downturn could be a strengthened bid for Sanders, the favorite heading into Super Tuesday, which could mean the bottom is anywhere but near,” Baird biotechnology analysts wrote. “We'd caution that markets may need to begin taking the potential for a Sanders victory more seriously.”

The Health Care Select Sector SPDR Fund, an ETF closely tracked by investors to gauge sentiment related to larger health companies, has shed roughly 10% of its value in the last six trading sessions. That move pales in comparison to a 13% decline for the iShares U.S. Healthcare Providers ETF, a fund largely made up of health-services companies, which are most exposed to Sanders's plans to shake up the industry.

While the broader ripples from the coronavirus have sparked much of the selling, some on Wall Street have pointed toward Sanders's rise as a reason for the underperformance of managed-care companies and their peers.

“We suspect the dynamic of the Democratic primary, the muddled outlook for the general election, and the uncertain outlook for the coronavirus could continue to weigh on healthcare services shares for the foreseeable future,” Deutsche Bank analyst George Hill wrote in a note on Sunday. “We believe that should Sanders receive the Democratic nomination, healthcare services stocks would react negatively.”

The S&P Supercomposite Managed Health Care Index, a basket of seven of the largest U.S. managed-care companies, has fallen 17% from a recent peak on Feb. 19. Trading in the managed-care space has been seen as a potential proxy for who will win the presidential nomination and ultimately the election in November.

As markets continue to be volatile as the coronavirus spreads and health-care focused investors make bets on who will win the Democratic nomination, Raymond James warned the debate is unlikely to fade soon. “Super Tuesday (March 3) should tell us a lot about who the likely candidate is, but the probability that the healthcare debate simmers down is extremely low,” analysts from the bank wrote.

To contact the reporter on this story: Bailey Lipschultz in New York at blipschultz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Kristine Owram

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