S&P Capital IQ and SNL, a business unit of McGraw Hill Financial and a leading provider of research, analytics and data, released its 2016 Healthcare Sector Outlook, which spotlights a number of challenges in the year ahead that will likely crimp the sector's recent track record of exponential growth.

The 2016 Healthcare Sector Outlook, Healthcare: Our 2016 Outlook, which is produced by S&P Capital IQ Equity Research, suggests that continued earnings growth deceleration, scrutiny over high drug prices, and election year politics could drive increased volatility in the sector.  Bright spots for the sector come in the form of pharmaceutical sales growth, global expansion and overall attractive valuations.  The report further suggests that the best case presidential election scenario for healthcare sector investors would be a Democratic win, presumably by Hillary Clinton.

Following are some of the report's key observations:

• Earnings Growth Decelerating: For 2015, earnings for healthcare companies are expected to grow 14.7%, representing the fastest rate of growth across all sectors of the S&P 1500 Composite Index . For 2016, S&P Capital IQ Equity Research forecasts a deceleration to 10.7% annual earnings growth, slower than many other sectors.

• Drug Prices in the Spotlight: Healthcare sector stock prices took a significant hit following highly publicized pharmaceutical price increases in 2015. S&P Capital IQ Equity Research expects drug prices to remain a contentious issue throughout the presidential election cycle in 2016, potentially increasing volatility for drug companies.

• Health Law Uncertainty: The twin forces of political uncertainty surrounding healthcare reform and soft enrollment in public health insurance exchanges are likely to have an adverse impact on sales growth throughout the healthcare sector.

• Bright Spots: Despite the challenges, there are still many reasons for optimism in the healthcare sector, including: continued pharmaceutical sales growth, global expansion, and favorable valuations, which currently stand at 15.1X 2016 estimated earnings, compared with 15.2X for the S&P 1500 Composite Index.

• Healthcare Investors Rooting for Hillary Clinton: S&P Capital IQ Equity Research believes the best scenario for healthcare investors is a Democratic win in the 2016 U.S. presidential election, ideally with Hillary Clinton becoming President.

"The healthcare sector has outperformed the broader market over each of the last five years, rising 130.7% over that time period, which is more than double that of the S&P 1500 Composite Index," said Jeffrey Loo, Director, Healthcare Equity Research at S&P Capital IQ.  "It's been a good run and we don't see the sector reversing course, but it will definitely face headwinds this year that will make it difficult to achieve the kinds of growth that we've seen recently."