By Ian Salisbury
The Dow has spent the past month badly underperforming the S&P 500. Investors can largely blame the market's overreaction to the recent murder of UnitedHealth Group executive Brian Thompson.
It has been a great stretch for the stock market, with the S&P 500 up nearly 3.5% in the past four weeks. You wouldn't know it from looking at the Dow Jones Industrial Average. Made up of just 30 blue-chip stocks, the index has returned just 0.6%, its biggest stretch of relative underperformance since July.
The most significant drag: UnitedHealth Group, trading at $610 before the Dec. 4 shooting, fell 11% in the first two days following the crime. It has continued to tumble, declining more than 21% overall, to just over $481 on Tuesday. The stock's struggles have cost the Dow, currently at just below 43,350 around 700 points over the past month, according to Dow Jones Market Data. By contrast Goldman Sachs and Travelers Cos., the index's next largest millstones, have each cost it roughly 100 points.
UnitedHealth may continue to weigh on the Dow in the near term. Thompson's murder isn't the company's only problem. Instead, it served to highlight longstanding discontent and dissatisfaction with the U.S. healthcare system, that politicians have been promising to reform.
Last week news broke of a bipartisan bill sponsored by Democratic Sen. Elizabeth Warren and Republican Sen. Josh Hawley to force health insurers to sell off pharmacy benefit managers as part of an effort to lower drug costs. The move could affect stocks including UnitedHealth as well as CVS Health, another troubled healthcare stock. On Monday President-elect Donald Trump piled on, promising to "knock out the middleman" who was getting "rich as hell" to lower drug prices.
But while rumblings like these in Washington add uncertainty for UnitedHealth and other healthcare stocks, investors should take them with a grain of salt. If the Obamacare debate of the late 2000s proved anything, it's how difficult it is for Washington to wring costs out of the sprawling healthcare industry. What's more, then-President Barack Obama was determined to make the project his signature achievement -- President-elect Trump has other priorities, like tax cuts, immigration and tariffs.
In a note last week, Raymond James analyst Chris Meekins dismissed Washington's latest reform effort as grandstanding. "If you are serious about doing this, you let some other Republican lead it and then have a less controversial Democrat on the other side," he wrote. "In our view, this is headline risk, not real risk."
It's also worth pointing out UnitedHealth's price decline hasn't led to any analyst downgrades. Instead, a handful raised their price targets in response to optimistic guidance the company issued at the meeting where Thompson was killed. As a result, analysts' average price target has edged up to $640 from $633 in November, even as the stock wilted.
Wall Street's sell side analysts are known for being a bullish bunch. It isn't hard to see why an analyst would shy away from issuing a downgrade in the days following such a shocking tragedy.
But they are probably right to sit pat. UnitedHealth has its issues, but its unlikely a single terrible crime would dramatically change the fate of $400 billion company.
Write to Ian Salisbury at ian.salisbury@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 17, 2024 16:14 ET (21:14 GMT)
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