While it may be disappointing from a political perspective, gridlock in the government is the best election outcome for your portfolio of healthcare stocks, analysts say.
"Our view still remains that the best thing for the space is a divided government," JPMorgan analyst Nadia Lovell said by phone. "It will make it very difficult for any sort of sweeping reform in 2017. [Healthcare] subsectors that would outperform in such an environment."
To put it concisely, "healthcare outperforms post-election when gridlock reigns," as analysts at Mizuho Securities wrote.
Most analysts and pollsters expect that the Democratic candidate, Hillary Clinton, will win the presidential race, while the House of Representatives swing majority Republican. The race for the Senate is seen as a much closer one, and could lean either Republican or Democrat.
Best for healthcare stocks though? A Clinton presidency, Democrat majority in the Senate and Republican majority in the House. It's under these conditions that the S&P 500 healthcare indices outperform, especially after the election.
According to Lovell, investors pulled back on biotech and pharmaceutical stocks as early as last fall in response to worries about the election. Analysts say they expect the space to rebound if the election results in government-wide gridlock.
It's likely that many investors interested in the healthcare space have been staying on the sidelines, waiting to see what the results of the election are before picking a group of stocks that looks safe for investment.
"We think there is money on the sidelines that could start to return after the election, assuming the scenario plays out generally within expectations," analyst Michael Yee of RBC Capital Markets wrote in a note. "Assuming no 'Democrat sweep,' it is possible biotech companies move back up since it would still be difficult to get any real legislation passed and gridlock would ensue."