The Dow Keeps Rising on Strong Earnings, But Health-Care Stocks Get Left Behind
On Wednesday, the Dow Jones Industrials followed through on their bullish behavior from Tuesday, rising 78 points as of 11 a.m. EDT. Although housing starts in the U.S. last month rose at a slower pace than expected, and despite a drop in building permits, positive earnings results from key players in the banking and technology sectors led to widespread optimism about the ability of the stock market to sustain and build on recent gains. Yet for health-care stocks UnitedHealth Group and Johnson & Johnson , Wednesday's morning session brought falling share prices and concerns about whether the industry can participate in a broader economic and stock market recovery.
UnitedHealth Group was the worst performer in the Dow Jones Industrials on Wednesday morning, falling more than 1%. The stock got a downgrade from a Wall Street analyst this morning, but of more concern is the health-insurance giant's earnings report due on Thursday. Investors foresee lower earnings despite higher revenue for the health insurer, and UnitedHealth Group's results will finally cast some light on the impact of the Affordable Care Act as its individual health-insurance mandate provisions take effect. Even as much of the rest of the economy has seen growth accelerate, UnitedHealth Group faces the specter of reimbursement-rate cuts from key government health-care programs that could do real damage to its bottom line in the months and years to come.
By comparison, Johnson & Johnson's decline Wednesday was minimal, especially in comparison to the health-care conglomerate's 2% jump yesterday following its generally favorable earnings release. Yet within those results, shareholders could still see the interplay of factors affecting the health-care industry. Just as the pharma-specialist stocks in the Dow are seeing gains today, J&J's pharmaceutical division was the standout performer within the company, producing massive growth and giving investors hope for Johnson & Johnson's future potential. Yet more sluggish results in medical devices and consumer-health products show some of the uncertainties in the health-care industry right now. To move forward on all cylinders, Johnson & Johnson will have to solve the health-care conundrum and start growing all of its segments.
By itself, the health-care sector won't make or break the Dow Jones Industrials and their long-term performance. But as the Dow seeks to set new record highs, anything that holds them back could prove detrimental to the health of the entire stock market. Investors should keep an eye on UnitedHealth Group, Johnson & Johnson, and other key players in the health-care sector to see if they can break out of a potential funk and soar with the rest of the market again.
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The article The Dow Keeps Rising on Strong Earnings, But Health-Care Stocks Get Left Behind originally appeared on Fool.com.Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson and UnitedHealth Group. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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