An extra Super Tuesday... for the healthcare sector, which rallied massively after Joe Biden scored wins in most of the 14 Super Tuesday states. Biden's victory affected healthcare stocks because it suggests a lower likelihood of a Bernie Sanders Medicare for All reality, which would abolish private health insurance. Health insurance companies/investors breathed a collective sigh of relief:
- The S&P health care sector soared 5.8% and recorded its best day since 2008 — health insurers added around $48B in market value Wednesday.
"Pricing in" the risk of a Bernie win... A stock's price is largely dependent on what investors perceive to be the future growth/profit potential of the company. Tuesday changed things for health insurance:
- Before Super Tuesday, UnitedHealth's stock had a priced in chance that the company might be decimated by a Bernie presidency.
- Now, the odds of that are lower. Biden's wins increase his odds of becoming the Dem's presidential nominee, and he advocates for less dramatic healthcare reform.
- The result: The less-probable Bernie victory boosted UnitedHealth's market value by $20B.
"Policy risk" affects some more than others... And it's baked into the stock prices of companies in certain industries: Tobacco and gun stocks reflect the risks of anti-tobacco and gun-control policies — Defense stocks mirror the risks of foreign military conflicts. When industry-specific policies shift, the industry stocks react (for better or worse). And 2020 is a year of policy risks.