Exploring Trump Trade’s Effects on US Medical Device Companies
Trump trade refers to the stock market rally that started following the election of Donald Trump as the president of the United States on November 8, 2016.
The SPDR Dow Jones Industrial Average ETF (DIA) has risen more than 13% since then. Medical instrument and supply companies constitute ~6.3% of DIA’s total holdings. Major medical device companies Medtronic (MDT), Thermo Fisher Scientific (TMO), Zimmer Biomet Holdings (ZBH), and Abbott Laboratories (ABT) have risen ~2%, 12.6%, 12.7%, and 8.1%, respectively, since November 8.
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Investors showed confidence in the Trump administration due to the favorable policies President Trump announced during his presidential campaign, which focused on issues such as tax reform, deregulation, trade restrictions, and a $1 trillion investment in infrastructure development.
Trump’s proposed policies were expected to boost US economic growth and revive the country’s employment outlook. However, due to the inaction of the government on its policy agenda, investors are starting to grow wary.
Impact on medical device sector and the market
Obama’s healthcare reform, famously known as Obamacare, remains a key concern for the US healthcare industry. With the introduction of a medical device tax, the medical device industry was expected to see a considerable negative impact. Due to higher taxes, companies were expected to register lower revenues. Consequently, low investment in research and development was expected to stifle innovation, and the quality of services and solutions provided to customers was expected to fall.
Trump’s agenda included repealing and replacing the Obamacare, fueling hopes among healthcare industry investors. The Health Care Select Sector SPDR ETF (XLV) and the iShares U.S. Medical Devices ETF (IHI) have risen ~9.3% and 13.8%, respectively, since November 8, 2016.