Fisher Investments Editorial Staff
Politics, Taxes

There's a Pill for That

By, 03/23/2010

Story Highlights:

  • Late Sunday evening, the House of Representatives passed the Senate's version of the health care bill.
  • On a global scale, much of the rest of the developed world has even more centralized health care systems than this bill creates in the US—and their stock market returns have been entirely competitive throughout.
  • The stock market has rallied throughout the past year's debate on the issue and was even in positive territory today.

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Late Sunday evening, the House of Representatives passed the Senate's version of the health care bill—sending it to the President's desk for his signature, anticipated Tuesday. We have said repeatedly in this space this bill had a low probability of passing, due to the very nature of politicians—who typically put professional security above any other concern. We had thought they'd be loath to spend so much political capital in a mid-term election year. Indeed, though the bill did pass, it required political maneuvering the likes of which we've never seen and may never see again, just to get a slim, single-party majority. 

But regardless of how you feel about the bill, our primary concern is its impact on capital markets. And capital markets seem to be giving the entire business a great big yawn. Indeed, almost as soon as the health care debate began, stocks began a terrific surge. This is not to say the debate was the cause of the rise—rather, that intense debate was not enough to knock stocks. And now with the bill a reality (pending some formalities), stocks rose nicely on Monday. Perhaps investors are breathing a sigh of relief over the resolution of such a contentious battle and long-standing uncertainty. 

The stock market doesn't typically discount developments out more than a couple years or so—and because enactment of the bill's "headline" provisions is delayed, near-term macroeconomic effects are minimal. Some very minor benefits begin this year, but the first new taxes for individuals start in 2013—an eternity, politically. The bill's provision to increase Medicare taxes and apply them to investment income for wealthy Americans is a negative, but the magnitude of this provision isn't as big as many fear—and, again, delayed until 2013. The bill's first tax increase does begin in 2011—a 10% tax on tanning salon revenue—a windfall, to be sure. (Separately, we are certain no beauty salon will simply reclassify "tanning revenue" as "manicure revenue.")  

Within the Health Care sector, there will likely be winners and losers. These will emerge more with time, but at this point, we'd still expect Health Care on the whole to lag other sectors relatively this year—partially because of the legislative uncertainty, which has abated some now. But also because the sector is less economically sensitive, and this year, we'd expect more sensitive sectors to lead the way. 

And remember, though the bill will affect the US health care industry and US taxpayers, it will have little, if any, impact outside America—save certain health care companies that sell products in America. And America is currently less than a quarter of world GDP. On a global scale, much of the rest of the developed world has even more centralized health care systems than this bill creates in the US—and their stock market returns have been entirely competitive throughout. 

The political battle isn't over: The House passed the bill with another bill—a raft of "fixes." Those fixes now go to the Senate, with only 51 votes needed to pass through the reconciliation process. Should they approve, it too goes to the President to be signed into law—if the Senate makes any changes, that bill will go back to the House for another vote (and on and on, until both chambers agree on the same version). Nor is this the end of the "health care" debate—and Democrats may find themselves facing additional headwinds in election fights this year. But stocks seem more intent on pricing in an overall improving world than worrying about political cat-calling here in the US.

 

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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