How Trump's Shutdown Standoff Could Hand Health-Care ETFs A Lifeline

While Washington fights a record government shutdown, some investors are looking under the radar at the health-care ETF arena for any signs of movement.

The Health Care Select Sector SPDR Fund (NYSE:XLV), iShares U.S. Healthcare Providers ETF (NYSE:IHF), and SPDR S&P Health Care Services ETF (NYSE:XHS) are among funds that would be beneficiaries if President Donald Trump‘s recent statements about negotiating with Democrats on health-care subsidies materialize into policy action.

How Trump’s Remarks Could Reshape Healthcare ETFs

The market is listening. Trump’s comments that “good things could happen with respect to health care” suggest a possible shift from confrontation to negotiation, one that could stabilize the prospects for insurers, hospital chains, and drugmakers that dominate these funds.

During the 2017 ACA ( Affordable Care Act) repeal standoff, XLV had rallied through August and September as repeal efforts faded and bipartisan talks on subsidy stabilization took shape. If renewed negotiations allay subsidy and Medicaid cut fears, ETFs like XLV, IHF, and the like could benefit. Wider funds, such as the Vanguard Health Care ETF (NYSE:VHT), provide diversified exposure to pharmaceuticals and equipment manufacturers.

Tolerant investors can consider iShares Biotechnology ETF (NASDAQ:IBB) or SPDR S&P Biotech ETF (NYSE:XBI) — both extremely sensitive to policy sentiment shifts. Biotech ETFs and indices tend to react more strongly to U.S. policy news, including draft drug-pricing reforms, changes in ACA, or updates to FDA rules.

Is A Bipartisan Deal On The Horizon?

IBB and XBI contain companies whose valuations rely substantially on government reimbursement and regulatory schedules — like small- and mid-cap pharmaceutical companies that lack diversified revenue streams. That makes them more sensitive to Washington mood swings than, say, large healthcare ETFs such as XLV, which contain solid insurers and medical-device manufacturers.

The context, however, remains politically charged. The government shutdown, now in its second week, has frozen up agencies and deprived hundreds of thousands of employees of pay. Democrats are calling on any temporary spending bill to deal with expiring ACA subsidies in 2025, while Republicans are holding out for the government to reopen initially.

Trump’s temporary opening of the door to negotiations stoked hopes of a deal, but he quickly closed it, indicating that discussions would only resume when federal activity resumes.

The Market’s Reaction To Political Uncertainty

Nevertheless, even a spark of cooperation could be market-moving. Investors don’t require a deal, they merely require direction. If Washington begins negotiating rather than brawling, health-care ETFs may be the first to benefit.

At this point, the trade is speculative, but in a headline-addicted market, even Capitol Hill mayhem might be just what the doctor prescribed for health-care ETFs.

Read Next:

Photo: Shutterstock