Mizuho's Jared Holz on Trump's Medicare advantage proposal: 'This is just a shock to the system'
Summary
- The Trump administration proposed a net average payment increase of only 0.09% for Medicare Advantage, significantly below Wall Street expectations.
- Major health insurers (UnitedHealth, Humana, CVS, Centene, Elevance) suffered massive sell-offs (10-20%) as the "turnaround year" thesis was invalidated.
- Strategist Jared Holz predicts a 1-2 year period of stagnant earnings growth, suggesting the sector is "dead money" rather than a buying opportunity until the final ruling in April.
Trade Ideas
The administration proposed a "0.09% next year" payment increase. Holz notes investors were "positioning long thinking this was going to be a turnaround year," but now we are entering a "pocket now for a year, maybe two, in which earnings don't expand or grow." The macro environment for government-sponsored healthcare has shifted from a growth story to a stagnation story. While the stocks have dropped 20%, the fundamental driver for stock price appreciation (earnings growth) has been removed for the medium term. Buying the dip is premature because the capital will be tied up in a sector with no catalyst for 12-24 months. Do not buy the dip yet. The thesis has shifted from "turnaround" to "stagnation." The final ruling in April could be revised upward significantly, causing a relief rally (short squeeze).
