Investors’ Eyes on Health Care Debate
By Laif Meidell, portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH) and the AdvisorShares Market Adaptive Unconstrained Income ETF (MAUI)
The state of Missouri is commonly known as the “Show-Me” state, a nickname that is said to have come from a speech given in 1899 by Missouri’s U.S. Congressman Willard Duncan Vandiver. During his speech, he said, “I come from a state that raises corn and cotton and cockleburs and Democrats, and frothy eloquence neither convinces nor satisfies me. I am from Missouri. You have to show me.”
This past week marked the beginning of the Republican rollout of the American Health Care Act, which if eventually passed will replace the Patient Protection and Affordable Care Act, also known as Obamacare. The choppiness in the broad market this past week almost appeared to be a reflection of the back-and-forth going on in Congress over the proposed health care bill. With the U.S. stock market riding high on campaign promises of major reform to both health care and tax laws, investors will be watching closely in the coming weeks to see how well Congress can work together to pass a health care bill that will benefit the majority of Americans.
Like Missourians, investors are at the point of saying to Congress: “You have to show me.” Should Congress lack the will to work together on health care reform, this would cause significant erosion in investor confidence and lower expectations that lawmakers can pass a meaningful tax reform bill later this year. As of Thursday’s market close, investors appeared to be in favor of the new health care bill, with the Dow Jones U.S. Healthcare index up 0.11 percent over the past five trading days, versus the Standard & Poor’s 500 index, which has slipped 0.71 percent over the same period.
Health care companies only make up approximately 14 percent of the S&P 500, so the success or failure of Congress to agree on a new health care bill will only directly impact a slice of the companies that make up the U.S. economy. Of course, most, if not all, American companies will be impacted in some way by any new health care law.
Though Washington, D.C., is having more of an impact on the stock market lately than the Federal Reserve, next week’s FOMC meeting seems to be having an impact on the bond market lately. As of Thursday’s close, the Fed fund futures were predicting a 100 percent probability of a rate increase at the conclusion of the Fed meeting this Wednesday, and a 47.6 percent probability of another rate increase at its June meeting.
Recently bond investors have become increasingly nervous, such that over the past two weeks the ICE U.S. Treasury 7-10 Year Bond index has declined 1.73 percent, and the ICE U.S. Treasury 20+ Year Bond index has fallen 3.17 percent over the same period.
However, the fact that the stock market is holding together as well as it is in the face of rising short term and long term interest rates is a good sign. It also means that investors will be looking for positive news from both economic reports and from Washington, that suggests the U.S economy can continue to grow in a higher rate environment.