Insights & Advice

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It’s a Healthcare Weekend

Investors are already jockeying for positions, ahead of this weekend’s congressional vote on the Obama Administration’s health care bill. It didn’t help that Friday was also a Quadruple Witching Day when four different futures and options contracts expire. These factors caused what had been a calm, practically sleepy week in the markets to end with a great deal of turbulence.

In my opinion, trying to parse the impact of the passage of a health care bill on individual stocks is an exercise in futility. Even betting on or against a particular area of healthcare is questionable. Yet, traders do it all the time when a particularly important piece of legislation is pending. So this week there was considerable movement in areas ranging from health insurers, to medical technology, to big cap Pharma names to even the smallest biotech companies.

I’ve learned the hard way that a piece of legislation that is this broad, which will impact so many areas and companies is impossible to gauge. What could be “bad” for one company could become a windfall for another– compliments of the U.S. government. It’s the consequence of governmental interference in a quasi-capitalistic system like our own.

Now, I’m not going to predict whether the bill will pass (it’s hard enough guessing which way the market will go each week) but it appears from the market action that the chances of passage are better than 50-50. However, it is going to be close, otherwise the president would not have canceled a long planned trip to Asia in order to lobby a handful of swing votes crucial to passage.

I will say that if the health care bill doesn’t pass then the chances for Senator Chris Dodd’s financial reform legislation will be dead in the water as well. In fact, it could mean that nothing substantial will pass in Congress until after November’s elections. That state of gridlock might last far longer than anyone suspects, especially if the GOP takes back enough seats in the House and Senate elections. If so, we could face gridlock throughout the remainder of this president’s first term.

Historically a prolonged period of gridlock is actually good for the markets. You see, investors can accept, profit and/or protect themselves from whatever the status quo may bring. What the markets can’t abide is change, especially sudden change, which is what new legislation is all about. The more predictable a government’s actions, the more investors can profit from that situation no matter how good or bad the case may be.

In the meantime, after a near record string of up days the averages are finally taking a healthy break. There may be more fireworks next week as well based on the results of this weekend’s health care vote, but I suspect it will be a temporary thing. The markets appear to be in good shape overall and the bias is still up. I’m still looking for 1,200-1,235 on the S&P 500 Index.

Posted in A Few Dollars More, At the Market