Market Overview

A CURE For The Typical Healthcare Trade

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2017 was such a strong year for the market that the S&P Health Care Select Sector Index, which finished the year up 21.7 percent, underperformed the S&P 500 by about 1 percent.  

Still, it was a uniquely strong year for the S&P' 500's third-largest weighting. The FDA approved 46 new drugs in 2017, the highest number of approvals since 1996. And the sector is off to a strong start in 2018, with several companies getting acquired for nice premiums. 

As we head into the Q4 earnings season, the volatility that comes with pre-and post-earnings volatility can be a good time for aggressive traders to capture alpha. Outside of drug approvals and M&A deals, earnings announcements make for the most volatile events in healthcare.  

Strong Performance Despite Regulatory Uncertainty

The healthcare sector's strong performance was especially notable considering the uncertainty of the Affordable Care Act. Though Obamacare remains the law, the December removal of the requirement that all Americans get health insurance showed that there will likely mean more headlines for the sector in 2018.

“While the index did gain about 22 percent in the 52 weeks since the election, the index also grew about 26 percent between November 2013 and November 2014, the year the ACA was enacted," Direxion said in a recent note. "In the years since, the index fell into a range of about $50 above and below the $700 level, largely matching moves throughout the rest of the market before it began climbing in November 2016.” 

Direxion's leveraged healthcare ETF, the Direxion Daily Healthcare Bull 3X Shares (NYSE: CURE), attempts to deliver triple the daily returns of the S&P Health Care Select Sector Index.

That index's largest weightings are the pharmaceuticals and healthcare providers and services industries, which combine to make up over 50 percent of the index. Other industries represented include healthcare equipment and supplies, biotechnology, and life sciences tools and services.  

The fund's top holdings are Johnson & Johnson (NYSE: JNJ), Pfizer Inc. (NYSE: PFE), UnitedHealth Group Inc (NYSE: UNH) and AbbVie Inc (NYSE: ABBV). JNJ, ABBV and PFE all report earnings in the next week. 

No Guarantees

With a sector as levered to politics as healthcare, there can be no guarantees of extended periods of tranquility. That could prove particularly true with 2018 being a mid-term election year. While there are signs of stability, there are other issues to mull.

“In October 2017, President Trump officially declared he would end subsidy payments to ACA healthcare providers that kept premiums on consumers low,” said Direxion. “While the long-term status of these payments wasn’t set in stone as it was, their early discontinuation has thrown even more uncertainty into the boardrooms of companies like UnitedHealth than the repeated promises from Republicans to get rid of the ACA entirely.”

CURE is up 8.4 percent to start 2018.

 

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