Stock market hiccup: not so much about health-care decision

The US Supreme Court’s decision upholding President Obama’s health-care policy caught Wall Street, in addition to others, by surprise. Many investors had expected at least part of the landmark legislation to be thrown out.

Immediately after the decision was announced, the stock market, which was already in a glum mood because of worries over Europe, sank further. The Dow Jones Industrial Average, which was down about 95 points just before the decision, fell another 50 points. But by the end of the day, the Dow average had regained much of its losses, only falling 24.75 points to close at 12602.26.

Ironically, health-care stocks had a pretty good day. But some investors still grumbled that the Supreme Court decision might dampen business confidence and inhibit companies from hiring new workers.

“The labor market stopped recovering after the Affordable Care Act was passed,” said Barry Knapp, head of US Equity Portfolio Strategy at Barclays Capital in New York, speaking on CNBC. “There has been weak demand for hiring from small business.”

Many felt the decision would result in an even more polarized Congress, which would make the chances of an agreement on the budget less likely before the November elections.

“If the entire thing had been struck down, there would have been room late this year to come to terms on a budget deal,” says Jeffrey Kleintop, chief market strategist at LPL Financial in Boston. “The Democrats would have wanted to reinstate some parts of [health-care reform], and Republicans would have been willing to deal to get the tax cuts extended. There was some room to compromise.”

Nevertheless, Mr. Kleintop notes, the decision established one thing: It would become law for now, and business would have to comply with it.

“There is finally clarity around this,” says Kleintop.

Despite all the hoopla on the talk and news shows about the ruling, some Wall Street observers didn’t think the ruling had much impact on the stock market, since the bulk of the selling seemed to come from technology, energy, and financial stocks.

“Tell me how technology, energy, and financial stocks are affected by the health-care decision,” says Sam Stovall, chief equity strategist at Standard & Poor’s in New York. “The health-care stocks are declining less than the market.”

Instead, the stock market is wary of the continued financial turmoil in Europe, Mr. Stovall says. On Thursday and Friday, European nations are holding a summit. “The next hurdle for the market happens to be Europe,” says Stovall.

Nevertheless, most stock-market observers viewed the Supreme Court decision as a surprise.

“The conventional wisdom was that a conservative activist court would undo a liberal piece of legislation,” says Marty Leclerc, chief investment officer at Barrack Yard Advisors in Bryn Mawr, Pa.

However, Mr. Leclerc says, almost no matter what decision came down, the health-care industry was ready for it.

“Take a company like United Healthcare,” he says. “Two weeks ago, it announced that it would increase its dividend by 31 percent and buy back their stock.”

According to. Leclerc, the Congressional Budget Office estimates that as a result of the Affordable Care Act, the number of uninsured people going to hospitals will decline by 50 percent in four years. “That will be helpful,” he says.

Before the ruling came down, Jerry Harris, chief investment officer at Sterne Agee Asset Management in Birmingham, Ala., said he anticipated that the mandate for individuals to buy insurance would be struck down. If that happened, he said, the market would react positively since it would view the decision as politically unfavorable to Mr. Obama and favorable to the Republicans.

“Right now the market participants are looking for some good news politically,” he said.

But when it comes to politics, Wall Street is known to shift its allegiance often.

“The reality is that Wall Street supports whoever is ahead in the polls,” says Fred Dickson, chief investment strategist at D.A. Davidson & Co. in Lake Oswego, Ore.

In fact, even though many investors on Wall Street are unhappy with Obama, they have made money since he was elected. The Standard & Poor’s 500 index has an annualized return of 17.5 percent since January 2009, observes Mr. Harris.