Traders May Soon Unwind This Big Rotation Within Health Care

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(Bloomberg) -- The cure for ailing hospital stocks may be short-lived. 

While investors have recently been flocking to hospital stocks and selling insurers in a rotation that has accelerated as flu cases hit record levels in the U.S., fundamentals are likely to bring the two sectors back to their long-term trends after this quarter, analysts say.

"As you get out through 1Q, things will normalize," Bloomberg Intelligence analyst Jason McGorman said in a telephone interview. "We’ll kind of revert back to where things were before that."

The first signs are emerging. Today’s weekly update from the Centers for Disease Control and Prevention shows that flu activity has slightly decelerated, prompting some analysts to conclude this year’s season may have peaked. And while robust activity is boosting hospital visits in the short run, health insurers still enjoy a better long-term fundamental backdrop, McGorman says. 

J.P. Morgan echoes that. This year’s hospital/insurer "reversion trade" could be nearing its end, analyst Gary Taylor wrote in a note Thursday, reiterating the bank’s call to own insurers over hospitals over the long run.

©2018 Bloomberg L.P.

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