How Will the 2024 U.S. Presidential Election Affect Health Care Stocks?

We don’t believe investing based on predictions about political outcomes is wise. That’s because it’s tough to accurately predict and invest ahead of potential changes in government.

Consider how challenging it is to determine winners and losers before an election. Then, imagine trying to predict specific policy changes and how they could affect businesses and, ultimately, stock performance. Adding to the complexity, historical data shows that there’s not much difference in how the stock market performs under administrations led by Democrats and Republicans.

Health Care Companies Are in the Political Crosshairs Again

In our view, no sector is more exposed to political oversight than health care. Health care spending accounted for more than 17% of U.S. gross domestic product (GDP) in 2022, the most of any sector.¹ What’s more, health care touches the lives of every American and is a particularly significant issue for the oldest, most likely-to-vote citizens.²

In the U.S., health care pricing and access have long frustrated consumers and politicians. Congress has held hearings on drug prices since at least 1959. George W. Bush spent significant political capital revising the Medicare prescription drug benefit two decades ago. Since then, arguments in favor and against the Affordable Care Act (ACA) or “Obamacare” have been ongoing since its passage in 2010. Pushing through Medicare drug price negotiation has arguably been the Biden administration’s signal achievement.

With so much at stake, it’s unsurprising that the pharmaceutical industry was the top spender on lobbying in the U.S. last year. Two other industries among the top nine spenders are also health care-related.³

The health care industry is vast, varied and has strong political ties, with deeply entrenched interests opposed to meaningful reform. This makes it highly challenging to implement broad changes.

This means that health care companies are experienced in adapting to changes in the political landscape. Furthermore, some companies operate internationally, selling their products in countries with diverse and complex regulatory systems. These companies are adept at managing their businesses under various political environments and conditions.

Some historical perspective helps underscore this point — health care stocks outperformed the broad market over the 10 years after the ACA was signed into law, despite dire predictions to the contrary.⁴ We believe this demonstrates the sector’s resilience amid different political and regulatory settings.

Why the 2024 Presidential Election Will Keep Drug Prices and Access in Focus

The cost of drugs is likely to continue to be a major concern for voters. The government has recently implemented several measures, such as negotiating prices directly, considering regulations for pharmacy benefit managers and encouraging the use of cheaper biosimilar drugs. In addition, policy changes over the last few decades have led to the U.S. Food and Drug Administration (FDA) approving drugs faster and with less evidence than in the past.

The 2024 presidential election provides more evidence that drug prices will remain on the political front burner. Candidate Donald Trump's website argues for “better health care choices at lower costs.” Though he provides no specific policy proposals, the sentiment is clear. President Joe Biden has better-defined policy priorities, including implementing Medicare drug price negotiation, which is set to commence this year.

Another factor ensuring that drug costs remain a prominent issue? We’re witnessing the initial stages of rolling out potent new medications with hefty price tags. Obesity drugs, with their wide-ranging applications, have prices that are out of reach for the many individuals who could benefit from them. Similarly, new Alzheimer’s drugs hold major promise for improving patients’ quality of life, but critics raise concerns about their potential to bankrupt Medicare.

We believe these regulatory and market-based attempts to lower the cost of medicines should provide a net benefit for society by improving drug access and affordability.

Election-Year Stock Performance Depends on How Individual Companies Navigate Change

We’ve made two points. First, it’s incredibly challenging to predict and base investments on potential political outcomes, Second, health care companies are adept at navigating dynamic regulatory landscapes. While we believe both statements are true, it’s important to highlight that the impacts can vary across industries and individual companies.

For example, the emphasis on drug pricing means there’s likely to be a particular focus on the pharmaceutical and biotechnology industries, unlike other segments of the health care sector. And while we don’t invest by making top-down decisions, it’s worth noting that others often do. Consequently, pharmaceutical and biotech stocks might come under intense focus if politicians vie with proposals on drug prices.

In an environment where drug profits face challenges, companies that can innovate, offer cost-effective solutions and handle the pressures on their existing drugs are likely to perform better than those that can’t. An obvious example would be the stock of a company with a blockbuster drug facing imminent biosimilar or generic competition versus a firm under no such threat or with a more diverse drug pipeline.

Ultimately, we believe that agile and innovative businesses will continue to thrive regardless of which political party holds power in Washington, D.C. This is why we focus on companies with the potential to develop cost-effective, sustainable health care solutions that meet society’s long-term needs.