MW RFK Jr. may start a food and drug 'culture war.' Investors are running for cover.
By Chris Matthews
One analyst says the market reaction is 'wholly overdone'
President-elect Donald Trump's nomination of Robert F. Kennedy Jr. to lead the Department of Health and Human Services is one of several unorthodox appointments rolled out in recent weeks, and investors are scrambling to understand the move's potential impact on markets.
The HHS secretary oversees the largest department budget in the U.S. government, including more than $1.7 trillion spent on healthcare products and services through Medicare, Medicaid and the Children's Health Insurance Program.
Kennedy, if confirmed by the Senate, would also reign over vital agencies like the Food and Drug Administration and the Centers for Disease Control and Prevention, where his unorthodox views on vaccines and other pharmaceuticals could shake up the healthcare sector. XLV
Kennedy "would pursue a Make America Healthy Again agenda that aims to introduce new limitations on food products, as well as bans on chemicals and additives, among other changes that would significantly affect food and beverage companies," wrote Eurasia Group consumer and retail analyst Anbinh Phan, in a Tuesday client note.
Food and beverage stocks have suffered since the election, with the Invesco Food and Beverage ETF PBJ falling 1.2% compared to a 2% rise for the S&P 500 index SPX.
The pharmaceutical industry would also be in Kennedy's crosshairs if he is confirmed by the Senate, given the FDA's wide-ranging authority to approve new medicines and police the market for available drugs.
Kennedy is a "noted vaccine conspiracy theorist who opposes all mandates and has called to overhaul the approval process," wrote Maxwell Schulman, an analyst with Beacon Policy Advisors, in a Monday note.
Schulman added that "a vaccine-skeptical FDA could drag its feet on meeting necessary inspection and review requirements," while Kennedy could appoint like-minded officials to advisory boards at the FDA and CDC that hold sway over whether drug manufacturers have legal liability protections.
Pharmaceutical stocks have had a rough go since Trump's victory, declining, 3.4% in that period, as measured by the iShares U.S. Pharmaceuticals ETF IHE.
Analysts broadly expect Kennedy to win confirmation, despite his longtime status as a Democrat with liberal views on the environment and corporate power, and predict that moderate Republicans will save their political capital to protest other controversial nominations.
Investors should take note, however, that the power of an HHS secretary is circumscribed by a sprawling federal bureaucracy and a court system that has become increasingly hostile to regulators who attempt to make major policy changes without the blessing of Congress.
"The secretary of HHS is powerful, but that power is decidedly limited," wrote Spencer Perlman, healthcare analyst with Veda Partners, in a Tuesday client note.
If confirmed, Kennedy "will quickly come to realize that HHS secretaries are constrained by policymaking statute, regulation, case law and precedent," Perlman added. "To be blunt, we think the market reaction to the announcement of Kennedy's nomination is wholly overdone."
He noted that Kennedy would have no power to directly end vaccine mandates, which are imposed by states and localities.
Kennedy would have to get the blessing of the federal court system if he tried to remove a vaccine or other drug from the market, and the courts will demand proof that a drug manufacturer is violating federal law and its product is "not safe, pure and potent," Perlman said.
Under federal law, manufacturers of certain vaccines administered routinely are given legal liability protection, and consumers who are harmed by their vaccines can be compensated through a government-run program.
Kennedy could potentially strip this legal liability, if he appointed people at the FDA and CDC willing to retract recommendations that vaccines be administered routinely to children or pregnant women.
Pharma investors should be on the lookout for these tactics, Perlman said, though such a maneuver would "require significant time and effort to effectuate."
Perhaps the biggest risk to pharmaceutical, food and beverage companies will not flow directly from policy, but from the potential mainstream adoption of skepticism toward medicines, food additives and genetically modified organisms, according to Phan of Eurasia Group.
"With growing public focus on the intersection of nutrition, public health and corporate responsibility, these companies are poised to encounter escalating pressure to meet evolving government and consumer expectations," she wrote. "As health and nutrition become increasingly entangled in the broader culture wars, the industry will find itself navigating a more contentious and high-stakes environment."
-Chris Matthews
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November 19, 2024 14:46 ET (19:46 GMT)
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