Given that repealing and replacing Obamacare was on the top of the Trump administration’s agenda, the healthcare sector exited 2017 quite creditably. Such gains are likely to continue with the Health Care Select Sector SPDR (XLV) up 23% over the last one year, a shade higher than the S&P 500’s increase of 22.1%. Also, though the individual mandate for Obamacare has now been abolished, prospects for the sector continue to remain bright.
The all too familiar factors of an ageing population and steady demand for healthcare services, irrespective of economic conditions, continue to make stocks from the sector a lucrative option. Further, earnings and revenues from the sector are likely to improve in the fourth quarter, which makes it a good idea to pick up select healthcare stocks which are also slated to outperform their earnings estimates.
2017’s “Repeal and Replace” Scare
One of President Trump’s clarion calls on the campaign trail, repealing and replacing the Affordable Care Act was always going to be high on his agenda. Initially, in March, the Trump administration unveiled the American Healthcare Act, which proposed to ring in radical changes, such as eliminating the taxes mandated under Obamacare. At the same time, it sought to retain some of the existing law’s more popular provisions.
While the House of Representatives voted to pass the Bill on May 4, albeit by a narrow margin, the draft legislation failed to garner the requisite support in the Senate. Faced with a serious legislative reversal, President Trump instead issued an executive order and took other steps, all of which sought to weaken, if not replace, Obamacare entirely.
Ultimately, the Trump administration sought to achieve its primary objectives, tax cuts and a new healthcare legislation, through the Tax Cuts and Jobs Act of 2017. The new legislation effectively repeals the individual mandate, which is essential for the proper functioning of Obamacare.
