US stocks rising yet again, following yesterday’s gains, as President Obama signs new health-care legislation into law.
Positive reaction to the passing of the health bill is a bit perplexing, especially since many expected health care to act as a drag to the market’s yearlong rally.
But as we noted yesterday, it looks like there could be several benefactors from the legislation, ranging from hospital operators and pharmacy-benefit managers to drug and medical-device makers. And the final vote has added some much-needed closure to the situation, which seems to please investors.
But the ballooning federal budget deficit isn’t lost on some, and this $940 billion piece of legislation has Harvard economist Greg Mankiw worried about future implications:
In addition, I could not help but fear that the legislation will add to the fiscal burden we are leaving to future generations. Some economists (such as my Harvard colleague David Cutler) think there are great cost savings in the bill. I hope he is right, but I am skeptical. Some people say the Congressional Budget Office gave the legislation a clean bill of health regarding its fiscal impact. I believe that is completely wrong, for several reasons (click here, here, and here). My judgment is that this health bill adds significantly to our long-term fiscal problems.
Nevertheless, the stock market keeps puttering along. DJIA’s up 44 at 10830, while S&P 500′s up 2 to 1168.
“I don’t read this market rise as an endorsement of expanding federal indebtedness, but rather a vote of support for the functionality of government,” John Curran writes at Time’s Curious Capitalist blog.
Still, low volume is a cause for concern, even if recent economic data show signs of improvement. Composite NYSE volume yesterday fell well short of the 2010 daily average, suggesting there isn’t much conviction to the recent run-up.
“At some point in the next six months the stock market will reflect our nation’s debt dilemmas and at that point we’ll likely suffer through a painful correction,” Curran says. “But for the moment — knock on wood — things don’t look half bad.”
The stock market’s proven, to this point, that it’s not alarmed by Obama’s healthcare overhaul. Now bond investors will “register their approval or disapproval,” LA Times’ Tom Petruno points out, as the Treasury will sell $44 billion in two-year notes this afternoon, an auction that’s expected to go smoothly. Two other bond sales are also expected later this week, with all three debt sales expected to raise $119 billion.
Investors are still eager Treasury buyers, he says, especially since the Fed keeps rates near zero, fear swarms through Europe and many folks keep preferring a tiny guaranteed rate of return as opposed to gambling in the stock market.
“Some day, investors may well look back at these mammoth Treasury auctions and wonder, ‘What were we thinking?’” Petruno says. “But for now, the bond market’s only question to Uncle Sam is: How much more would you like?”