Chart of the week: is healthcare healthy?
Data-driven insights and analysis from our investment team every week.
Our chart this week shows how the price performance of the US Healthcare sector has fared relative to the S&P 500 over the last 12 months. After peaking in Q1, it has significantly underperformed the market post “Liberation Day” in April. However, on closer inspection, we can see that the sector’s performance is in line with the S&P 500 over the last four months. Most of the 12-month underperformance can be put down to a compression in the sector’s earnings multiple in the immediate aftermath of several political announcements by the Trump administration with respect to potential tariffs and drug pricing initiatives during the month of April.
We have had important developments in both these areas during recent weeks. First, Trump announced a 100% tariff on branded pharmaceutical imports, effective from 1st October. However, the charge will not apply to companies building or expanding manufacturing facilities in the US, including those under construction. This effectively exempts most of the large cap pharma sector that has announced significant investments in recent months from industry specific tariffs. Second, the US government has reached deals with several pharma companies whereby the companies have effectively agreed to narrow the gap between US and international prices for certain drugs and distribution channels in return for a moratorium on tariff and pricing mandates. Importantly, this is being done without compromising the sector’s ability to invest in innovation.
This now sets US Healthcare up nicely to regain at least some of the lost relative performance in April, as the greater visibility around healthcare policy should lead to improved sentiment and higher multiples in the sector.
