The healthcare sector looks cheap heading into 2024, but with the Trump administration in power, uncertainty looms in the new year. As 2025 begins, we discuss option plays to take advantage of price trends. Over the past 10 to 20 years, the U.S. health care sector has grown significantly relative to the overall economy as a percentage of gross domestic product. In 2003, health spending accounted for approximately 15.7% of US GDP. Over the next ten years, its share increased by about 1.7% to 17.4% of GDP in 2013. It is now estimated to be around 18.4% of GDP. The Centers for Medicare and Medicaid Services estimates that health care spending could account for approximately 20% of U.S. GDP by 2030. The steady increase reflects increasing demand for medical services, advances in medical technology, and rising costs. The demand for medical services has increased significantly due to the aging of the population (baby boomers entering retirement), and the length of life expectancy has increased the number of years of use of medical services. Another important cause of rising costs is the burden of chronic diseases such as diabetes, cardiovascular disease, and obesity, which are also driving up healthcare costs, and the latest innovations in diagnostics, treatments, and medicines are becoming more They tend to be expensive. XLV YTD Mountain 2024 Healthcare Select Sector SPDR Fund (XLV) The Affordable Care Act and expanded coverage through Medicaid have increased access to health care. Most people would agree that that's a good thing. However, when the demand for a good or service increases, so does the price. Hospital services, physician compensation, prescription drug prices, and administrative costs often exceed other areas of the economy. In addition to demographics, macroeconomic, political, and regulatory factors also influence the profitability of healthcare stocks. The healthcare industry is a growing proportion of the economy, with healthcare company revenue growth outpacing the overall market over the past five years, compared to just over 38% for the S&P. , an increase of nearly 61%. 500 cases during the same period. However, the sector has significantly underperformed broader market indexes, which have benefited from explosive growth in the technology sector. As 2025 approaches, investors may ask themselves: If the healthcare sector is growing faster than the economy, why are these stocks underperforming, and does this present an opportunity to play the group as a catch-up trade in the new year?Graph above As you can see, part of the problem is the margins. Profit margins in the healthcare sector have declined over the past five years and are now well below the 20-year average. Another concern? President-elect Donald Trump and those close to him, including Elon Musk and Vivek Ramaswamy, have emphasized cost-cutting and “efficiency.” Covering health care costs may become a priority for cost reduction. The healthcare sector has underperformed the S&P 500 index by more than 10% since the presidential election. Indeed, the incoming Trump administration's efforts to rein in government spending and improve efficiency could have a variety of effects. Streamlining the U.S. Food and Drug Administration's approval process could speed the launch of drugs and medical devices, benefiting innovative companies. Tax cuts and deregulation could increase profitability and cash flow across the sector. On the other hand, cuts in government health spending could put pressure on hospitals, businesses that rely on Medicare, and insurance companies. Efforts to curb drug pricing and wasteful spending could hurt profit margins, especially for major pharmaceutical companies. Uncertainty surrounding the Affordable Care Act, long a target of Republicans on Capitol Hill, could create unpredictability for insurance companies. Option trading is balanced and investors can see that well-managed companies can stabilize margins here, or even better, bring them back to around 6%, well below long-term averages. If we assume that, this sector will look cheap compared to the overall market. market. Of course, fundamentals are important from a long-term investing perspective, but they aren't very good short-term trading signals, and short-term technicals remain weak as of Friday's close. A call calendar offsets the cost of long-term purchases by selling calls with dates close to it. This strategy expects price movements to remain within a range in the short term. As your technique improves, you may adjust your short strike higher when rolling or holding a long call position, depending on your technical settings. Here is an example of a diagonal call spread using the Healthcare Select Sector SPDR Fund (XLV) and based on Friday's closing price. Sell XLV January 17 $138 Call Buy XLV March 21 $140 Call Disclosure: All opinions expressed by CNBC. The opinions of professional contributors are solely their own and do not reflect the opinions of CNBC, NBC UNIVERSAL, its parent or affiliates. Disseminated by them on television, radio, the Internet, or other media. The above is subject to our Terms of Use and Privacy Policy. This content is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice or a recommendation to purchase any securities or other financial assets. The content is general in nature and does not reflect your unique personal circumstances. The above may not be appropriate for your particular situation. Before making any financial decisions, you should strongly consider seeking the advice of your own financial or investment advisor. 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