US midterm elections: two outcomes to benefit two segments of healthcare

JPMorgan expects the US midterms to reshuffle healthcare winners, with the outcome hinging on which party controls Congress.

The bank’s strategists believe November’s vote should reward stock picking over broad sector bets – and healthcare appears in both of their scenario baskets: one for a split Congress, and the other for a Democratic sweep.

Republicans hold the majorities that have shaped recent tax and spending policies, though polling, betting odds, and the historical pattern of incumbent parties losing seats point to a hard night for them.

Medicaid is the common thread, and how much of its funding survives separates the two baskets.

What segment of healthcare will benefit from a gridlock?

A split Congress is the scenario JPMorgan favours for the market at large, as it often limits the risk of sweeping policy change.

For healthcare, the investment firm points to lower odds of Medicaid cuts, with Gilead Sciences in its basket of drugmakers strongly positioned to benefit.

Congressional gridlock often creates legislative stasis that shields healthcare from aggressive policy changes, pricing overhauls, or severe budget cuts.

Large-cap pharmaceutical players like GILD benefit directly – as a divided government lowers the risk of sweeping Medicaid spending cuts and protects steady drug reimbursement streams.

By insulating core product revenues from legislative disruption, gridlock provides higher earnings visibility and valuation stability.

What segment of healthcare will benefit from a blue wave?

A Democratic sweep would reorder the list, JPMorgan told clients in its latest research note.

Congress would still face a Republican White House, so the bank describes the policy shift as marginal – played out through funding talks and oversight rather than new law.

Within that limit, it sees hospitals as the clearest beneficiaries if lawmakers postpone or reverse Medicaid reductions, since the program underpins their revenue from lower-income patients.

And Medicaid-focused managed care companies sit in the same basket.

The difference from gridlock is one of posture. A split Congress mainly blocks new cuts, while Democratic control would test whether existing ones can be softened.

Drugmakers lean on the first outcome; hospitals have more riding on the second.

The selective trade

The practical upshot is dispersion.

JPMorgan’s baskets imply that healthcare will not move as one block after the vote, which is why the bank leans toward stock selection over sector exposure.

A sector often traded as a “single defensive trade” is, in this telling, two separate policy bets. Plus, timing adds a second variable.

Volatility, as tracked by the VIX, has historically peaked about a month before the US midterms –  and with the vote on Nov. 3, that window is open now.

Returns in the months that follow have tended to be positive. For healthcare investors, the sorting starts on election night, when results show whether control of Congress ends up divided.

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