Trump Trade Upside-Down in S&P 500 as Drugmakers Overtake Banks

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If the stock market is a voting machine, the latest leadership shift in the S&P 500 Index is another sign that the Trump trade is polling poorly.

Health-care stocks, which had been threatened by the president with regulations on drug prices, just became the the second-biggest industry in the equity benchmark, vaulting past financial companies that had been widely viewed as one of the biggest beneficiaries of Donald Trump’s growth agenda and plans to relax regulations.

The switch adds to evidence that investors are turning skeptical of Trump’s ability to carry out his promises. First, his party lost a battle to overhaul health care. And now, hopes are dimming for coming tax cuts. As a result, small-cap stocks and companies that pay higher taxes have erased most of the outperformance accumulated in the months after the November vote.

Riding a wave of takeovers and clinical breakthroughs, health-care stocks have rallied 17 percent this year, pushing their representation in the S&P 500 up one percentage point to 14.6 percent. At the same time, lenders and insurers saw their weight shrinking to 14.2 percent as a post-election rally faded amid falling Treasury yields.

Flipflops between the two industries have become more common in the past year after S&P shrank the financials group by reclassifying real estate companies as a separate industry. Since June, the banks and insurers group has surrendered the No. 2 slot to health-care four times. The largest industry in the index is technology.

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