In the first part of this article we looked at how the market has behaved during a Q1 2025 earnings season that had been completely overshadowed by events in Washington DC.
Digging deeper into the earnings data we found that the market had largely ignored earnings and revenue surprises in either direction be they beats or misses.
With one notable exception, the healthcare sector where the share prices of stocks that missed on earnings and revenues were hammered by as much as - 28.50% in a week
That, despite the fact that as of early May Healthcare stocks had provided the biggest boost to earnings growth with the S&P 500 index.
So what's going on here?
Well the first thing to realise is that the S&P 500 Healthcare sector is a very broad church.
By which I mean it contains a diverse range of stocks, drawn from very different industries that encompass pharmaceutical companies, medical equipment makers and suppliers, healthcare providers and other services.
This level of diversity means that isn’t really a typical health care stock the tables below give a flavour of the price action in the sector constituents over the last month.
The first table shows 1-month gainers in descending order.
Healthcare sector 1-month gainers
Source: Barchart.com
The second table 1- month fallers in the sector in ascending order
Healthcare sector 1-month losers
Source: Barchart.com
If we take the best and worst performers from our two tables and plot them together on chart we get the graph below United Healthcare UNH vs Dexcom DXCM.
Quite frankly this was a perfect long short or pairs trade just the kind of trade that CFDs were made for.
UNH fell by -25.99% in a month whilst DXCM gained +25.61% being long DXCM and short UNH during would have seen you return 50.0% plus on your money multiplied by the leverage employed in the trade.
Of course that’s trading with the benefit of hindsight which is a luxury we can’t afford.
UNH VS DXCM over 1-month
Source: Barchart.com
However, what this example does show is the kind of thing that we should be on the lookout for.
We can try and spot other potential trades be singell names or pairs using a comparison chart like this one which shows the year to date performance of S&P 500 Healthcare sector constituents compare to their 1-month performance versus the index.
The size of the bubbles in the chart reflect the 5-day percentage change in their respective stock prices.
Source: Darren Sinden/ Barchart.com
So for example ALGN which is Align technology has underperformed the S&P 500 by -8.48% year to date but has outperformed it over the last month by +7.14% it’s also up by +1.74% over the last 5-days at the time of writing.
The ALGN chart does not exactly leap off the page but we can see that a sustained break above $191.76 & $192.00 could see the stock move to $204.00 and perhaps even back $212.00.
Though it likely needs another catalyst before it could achieve that.
Source: Barchart.com
Where might such a catalyst come from?
Well once again all roads lead to Washington DC. US Health Secretary Robert F Kennedy and his associates see the $478.0 billion that the US Government spends on Healthcare and the $469.0 billion spent on Medicare the Federal health insurance system as being prime targets for cost cutting and efficiency measures.
The sort of things that Elon Musk and his DOGE initiative would love to take a swing at.
Markets have anticipated the worst in terms of what this could mean for profits in the sector among drug makers and healthcare providers and insurers.
And those concerns help to partially explain the sharp downturn in the price of United Healthcare for example.
But here’s the thing:
The Trump administration and the President himself imposed harsh tariffs on China and others in early April, as a tool to bring other countries to the negotiating table. And already we are seeing something of detente and some give from Washington.
With the President saying that tariffs of 80.0% might be the right level for China, ahead of forthcoming trade talks. That compares to the +145.0% rating that was initially proposed.
So might the bark over Healthcare spending cuts, and the repricing of drugs and medicines (and thus the impact on the sector's earnings) also turn out to be worse than the bite?
We can’t know for sure but its certainly something to look out for.
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