As lawyers, lawmakers and legal scholars handicap the arguments on President Obama’s health care law before the Supreme Court, Wall Street investors have been placing their own bets on the likely winners and the losers in a battle that could transform the national market for health care.
“People can adapt either way to whether it stands or it doesn’t stand,” said Barry James, president and CEO of James Investment Research Inc. “There’ll be winners and losers on both sides of the equation.”
Generally speaking, he added, “the very large companies who have had a lot of input in the bills have made sure of their survival, and the smaller companies are generally adaptable.”
Leading up to the Supreme Court showdown, the Standard & Poor’s index of leading health care and health-related stocks looked a little bleak, as the sector underperformed in the opening two months of 2012 compared to a strong performance in 2011.
Reflecting investor uncertainty, the New York Stock Exchange index of health care stocks has risen just 3.6 percent since the beginning of the year, compared to almost 11 percent for the market as a whole.
But the economic impact of the court’s ruling, expected to be handed down in June, will take some time to analyze. Complicating the market’s calculations is the fact that the high court could uphold the law, strike down it down entirely or hand both sides a partial victory.
“The markets are very good about anticipating things,” Mr. James said. “Some of the pieces are already in place and it would really screw things up for people who have already adapted if it gets overturned. There’s good and bad both ways.”
According to a Goldman Sachs research note, some 70 percent of 200 institutional investors in a private poll said they expected the court to uphold the Affordable Care Act - but that was before Tuesday’s arguments were heard.
The top health care stocks revealed a predictable flux that Mr. James said he had anticipated, although investors had the debate over the Obama health plan in their crosshairs long ago.
“With the situation as it is now, we’re going to be in a state of flux because no one will probably know until June whether it stands this particular test or not,” Mr. James said. “Uncertainty is the least-favored option.”
Out of the top 10 health care stocks, five closed higher Tuesday, despite widespread news reports that the Obama administration’s lawyer received a rough grilling from key court justices in Tuesday morning’s arguments.
S&P analysts said that based on their data, they could not speculate on any outcome nor its potential consequences.
Health care stocks may or may not be an indicator into how investors think the court may rule, but the online political “prediction market” called Intrade.com buys and sells “stock” in predictions on various topics. From predictions on the Dow Jones industrial average to the 2012 presidential race to whether Iran will be bombed by 2013, Intrade “investors” can place bets on the eventual outcomes.
Intrade.com’s prediction that “the U.S. Supreme Court to rule individual mandate unconstitutional” before the end of the year was up $1.87 to $5.67 late Tuesday, with the investors forecasting that the chances the health care law would be overturned as high as 58 percent. The market was the most active on the trading website Tuesday.
“The overarching view that we have is that it adds a layer of complexity,” Mr. James said about the fiscal impact of the health care law.
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