Healthcare and the Stock Market

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The stock market is rising on the healthcare news— the S&P 500 index gained 0.5% on Monday and the Dow industrials gained 0.4%. That’s a welcome  relief because it wasn’t a given that stocks would react positively to a big, expensive government initiative. I don’t read this market rise as an endorsement of expanding federal indebtedness, but rather a vote of support for the functionality of government. Despite the ugly method by which the healthcare bill reached the President’s desk, the fact that it did at all sends a message that the U.S. Government is not paralyzed. This stands in stark contrast to the European Union, which cannot seem to agree on a way to help Greece out of its debt crisis.

Healthcare stocks rose a bit more than the averages, up about 0.7%, but they were not Monday’s market leaders. That honor goes to casino stocks, which jumped 6%. As the market headed toward its close, Barton Biggs of Traxis Partners was telling Bloomberg television that long-only hedge funds are substantially under invested and that the rising market will draw in more money. Biggs has been bullish for some time and he remains so, at least with regard to the next few months. I am also reading that Mary Ann Bartels, the chief technical analyst at BofA/Merrill Lynch sees the stock market’s technical strength as quite good in spite of low daily volume. The low “up’ volume, Bartels notes, surpasses the low “down” volume.

All of which makes this an interesting trifecta of reverse market psychology: Healthcare reform is turning out to be largely an expansion of government subsidized healthcare coverage (bearish), but it’s also sending a ‘can-do’ message from Capitol Hill (bullish); the fact that hedge funds don’t trust this stock market rally  (bearish) may turn out to be a good thing, as they will slowly convert (bullish). Even the stock market’s anemic volume (bearish) is not a worry since there are positive signals within those numbers (bullish). At some point in the next six months the stock market will reflect our nation’s debt dilemmas and at that point we’ll likely suffer through a painful correction. But for the moment—knock on wood—things don’t look half bad.

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