Stock Market Signals Health Reform Flop
Is a closely watched basket of insurance stock rallies bad news for Obama?
March 19, 2010— -- President Obama's push to pass health care reform will fall short -- that is, if the stock market is any indicator.
Thursday saw more than twice the normal trading volume in shares of the Dow Jones U.S. Health Care Providers Index (NYSE: IHF), a closely watched assortment of health insurance companies, including Aetna, CIGNA, Humana and UnitedHealth Group. The uptick, at least in theory, could be read as a sign that the market perceives reform as unlikely to pass, said Don Dion, founder of Dion Money Management in Williamstown, Mass.
"Major reform, particularly a public option, would really hurt the health insurance providers," Dion said. "When it looked like this bill was closer to passing, IHF shares got hammered. Back when Scott Brown got elected -- when it seemed like Obamacare was dead -- IHF shares rallied. "
IHF, an exchange-traded fund, closed up nearly 2 percent Thursday, moving up to around $52 per share from around $51. Another popular health care ETF, the Health Care Select Sector SPDR (NYSE: XLV), also finished higher on the session. (An ETF is a collection of stocks, like a mutual fund, that can be bought or sold as a unit on a stock exchange.)
But traders looking to cash in on the epic political cliffhanger might want to move beyond conventional wisdom -- in other words, zig when the market appears to be zagging.
"That the IHF is rallying isn't necessarily a signal that the market thinks reform will fail," countered Michael Johnston, senior analyst at Chicago-based ETF Database. "I think the market has come to accept that the worst-case scenario, i.e. the public option, is not going to happen. The stock's movement just shows that the market no longer has an expectation that health care reform is going to hurt these insurance providers one way or another."
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