As the November midterm elections approach, JPMorgan strategists are advising clients that the healthcare sector will not move as a monolith. Instead, the outcome of the vote is likely to create distinct winners and losers within the industry, depending on which party gains control of Congress.
In a recent research note, the bank outlined two primary scenarios. In the first, a split Congress—where neither party holds both chambers—would likely limit sweeping policy changes, reducing the risk of Medicaid cuts. This environment would favor large-cap pharmaceutical companies like Gilead Sciences, which rely on stable drug reimbursement streams. Gridlock, the strategists argue, provides higher earnings visibility and valuation stability by insulating core product revenues from legislative disruption.
The second scenario involves a Democratic sweep, which would give the party control of both the House and Senate. Even with a Republican in the White House, JPMorgan notes that Democrats could still influence healthcare policy through funding negotiations and oversight. In this case, hospitals and Medicaid-focused managed care companies would be the clearest beneficiaries, as Democrats are more likely to postpone or reverse Medicaid reductions that underpin revenue from lower-income patients.
The distinction between the two outcomes is one of posture. A split Congress primarily blocks new cuts, while Democratic control would test whether existing cuts can be softened. Drugmakers lean on the first outcome; hospitals have more riding on the second.
JPMorgan's analysis suggests that investors should focus on stock selection rather than broad sector bets. The healthcare sector, often treated as a single defensive trade, is in this telling two separate policy bets. Timing also adds a variable: historical data shows that volatility, as measured by the VIX, tends to peak about a month before midterms, and with the vote scheduled for November 3, that window is currently open. Returns in the months following the election have generally been positive.
For healthcare investors, the sorting begins on election night, when results will indicate whether control of Congress ends up divided or unified. The bank's baskets imply that healthcare will not move as one block after the vote, reinforcing the case for a selective approach.
This article is for informational purposes only and does not constitute financial advice.
