Healthcare, food and drink stocks are often popular during recessions and bear markets (a decline in the stock market; transition from investor optimism to pessimism) because they are necessities. On the other hand, defensive holdings are not necessarily beneficial in a bull market (when stock prices are expected to be high), and investors would be better off purchasing stock in technology and industrials.
However, healthcare is becoming less of a defensive type of stock. It has outperformed the S&P 500 (Standard and Poor 500 is a stock market index based on market capitalizations – number of shares outstanding - of 500 large companies).
Before the Affordable Care Act, there were both positive and negative theories about how it would affect the healthcare sector in the stock market. The negative theory argues that it would require pharmaceutical companies to provide higher rebates to Medicare for prescription drugs, new excise taxes on branded drugs, and 2.3% tax on the sale of medical devices. The positive theory claims that with more people having health insurance, patients would now invest in preventive care and prescription drugs.
It seems that the Affordable Care Act is having a more positive impact on healthcare in the stock market than a negative one, with more than 20 million people expected to be insured by 2015.
Summary by MedicalGroups.com
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