The honeymoon is over for healthcare investors

The honeymoon is over for healthcare stocks as investors move one from their 4-year fling.

In addition to the slide of biotech stocks that began last month after high-profile headlines about drug pricing, investors have been dumping shares of everything from medical devices to hospitals to traditional pharmaceutical companies and insurers in recent weeks.

Since peaking in July, the Nasdaq Biotech Index has fallen 23%, the broad S&P Health Care Index has lost 12% and the S&P 500 Health Care Facilities index is down 31%.

Not even the traditionally secure medical device segment is immune. The Dow Jones U.S. Select Medical Equipment Total Return Index is off -8.2% from its 52-week high August 5, while the iShares Dow Jones US Medical Device ETF is down -8.9% from its yearlong peak August 6. The S&P Healthcare Equipment Select Index is down -11.3% from its 52-week high, also August 6.

Fund managers now say they expect myriad pressures weighing on the sector for the rest of the year and possibly into 2016. They include regulatory threats on drug prices, disappointing earnings, higher interest rates that could hurt heavily-indebted hospitals, and the loss of the initial Obamacare bump in business.

“The best case through the end of year is range-bound for healthcare, maybe biased downward slightly,” said Les Funtleyder, healthcare portfolio manager at E Squared Asset Management in New York.

“I think the more general sector rotation has probably created a high bar for these companies, and I am a little worried that meeting expectations isn’t even enough,” added Jeff Jonas, portfolio manager at Gamco Investors.

Material from Reuters was used in this report.

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