Health-care stocks are leading gains in U.S. equities this year for the first time since 1998 as companies cut costs and investors speculate an expansion of insurance programs will benefit hospitals and insurers.
Drugmakers, health insurers and biotechnology companies in the Standard & Poor’s 500 index have returned 12 percent in 2013, including reinvested dividends, the most among the 10 main groups. That’s the first time in 15 years that the industry has led over the first 79 days into a year. Analysts project profits will rebound from this year’s zero growth in 2014, according to data compiled by Bloomberg News.
“There is certainly a re-acceleration in growth prospects,” said Timothy Hoyle, director of research and fund manager at Haverford Investments in Radnor, Pa. “Most of the big drug companies have experienced patent cliffs and are now repositioning themselves for growth.”
Health-care stocks are rallying as estimates from the Congressional Budget Office show President Barack Obama’s health law may extend insurance over the next decade to about 27 million people who are currently uninsured. Companies such as Pfizer Inc., the world’s biggest drugmaker, have cut jobs and sold off businesses to boost profits and fund share buybacks. U.S. regulators approved 39 new drugs last year, the most since 2000.
The last time health-care companies led the S&P 500 in the first three months of the year, in 1998, the industry surged 42 percent. The U.S. equity benchmark posted an annual gain of 27 percent.
All but five of the 53 stocks in the S&P 500 Health Care Index have risen in 2013. Celgene Corp., a cancer-drug developer, and Tenet Healthcare Corp., a hospital chain, led the advance, surging 42 percent and 39 percent. That compares with an 8.4 percent advance in the S&P 500.
Profits from health-care companies in the S&P 500 will climb 8.4 percent, analysts say.