Trump, Clinton and the moral of a $15bn market-moving tweet

Donald Trump is the billionaire master of Twitter, but Hillary Clinton sent the $15bn tweet.

“Price gouging like this in the specialty drug market is outrageous. Tomorrow I’ll lay out a plan to take it on,” the Democratic presidential nominee tweeted last September. Although provoked by a particularly egregious case in which a company acquired a drug and promptly lifted the price by 5,000 per cent, Clinton’s words were enough to rattle US healthcare stocks. The Nasdaq biotechnology index, the corner of the stock market where investors rummage for the next money-spinning medicine, lost about $15bn to close down almost 5 per cent.

The tweet is seared into Wall Street’s memory because, so far, little else from this election campaign is. That’s a sharp contrast to the experience of pundits, politicians and voters for whom this fight for the White House is proving compelling. However, for fund managers trying to assess the potential impact of policies on portfolios, election campaigns are enervating and this one is no different. The only currency Trump deals in is the slogan, while Clinton has such a panoply of policies it’s hard to be confident which would be priorities should she win.

With polling day not until early November, the election isn’t at the centre of investors’ radars. So conclusions about what this election might mean for markets are inevitably tentative. Yet with three months to go until we discover Barack Obama’s successor, it is worth examining the question and there’s no better place to look than healthcare stocks.

Stretching from hospital operators to major drug manufacturers, the healthcare industry is one of the few in the crosshairs of both candidates. With an interest dating back to her time as first lady, Clinton has promised to end hefty increases in drug prices and expand the Affordable Care Act, or Obamacare. Although less of a signature issue for Trump, the Republican nominee accuses big pharma of ripping off government-funded healthcare programmes and has vowed to repeal Obamacare.

Handing more clout to Medicare — the government-backed healthcare programme for the elderly — to allow it to negotiate over the price of medicines, would likely be a headwind for the big drug companies, while unwinding Obamacare would be a major setback for hospital operators whose profits have been polished by the expansion of health insurance to more Americans. Analysts at Barclays estimate the legislation has lifted operators’ earnings 9 per cent.

There are signs the election has been a drag on the performance of the healthcare sector.

As Clinton’s tweet shows, political heat has been one factor troubling the Nasdaq biotech index since it hit a record high in July last year. After a scorching performance during the US stock market’s recovery from the 2009 financial crisis low, biotechs are down 13 per cent this year. Even the more defensive S&P 500 Healthcare Index is lagging behind, with its 4.1 per cent gain in 2016 making it the third-worst performer among the 10 major S&P sectors.

This picture, though, is a long way from real fear. Indeed, just as combat between Clinton and Trump has intensified in recent weeks, the biotech index has rallied hard. Since falling to a low for the year at the end of June, the index has jumped 24 per cent as a mix of cheaper valuations, optimism over drug pipelines and a better global backdrop for risk taking muscles out election concerns.

Analysts at JPMorgan, for example, now recommend investors buy healthcare stocks and dump consumer staples, a sector which, alongside utilities and telecoms, has been the major winner from the defensive mindset that has dominated in US equities this year. Acknowledging that “headline risk” for healthcare will be noisy until polling day, the analysts at JPMorgan caution any policy change that is material to the investment case for the sector “would require considerable alignment in Washington.”

In other words, the Republicans or Democrats would need to capture the White House, the House of Representatives and the Senate for the legislative plates on healthcare to really shift.

That investors judge this outcome remote is another reason for the blistering performance of biotech over the past month. So, too, is the pressure on fund managers to ensure they don’t miss out on any significant second-half rallies that will help repair their first-half performance, when just 18 per cent of mutual funds outshone the Russell 1000, according to Bank of America Merrill Lynch.

If that wasn’t enough, in five of the last six presidential elections the healthcare sector has outperformed the wider stock market by about 4 per cent in the six months following the vote.

With Trump upending conventional political wisdom on his way to the Republican nomination, and Clinton becoming the first female nominee, this election is already historic. However, if the current verdict from healthcare investors — some of the most seasoned election watchers on Wall Street — is anything to go by, it’s that actual change under the 45th president may prove less so.

richard.blackden@ft.com