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The markets have gone on a tear to kick off the new week, with the Dow Jones Industrial Average (DJINDICES:^DJI) up more than 175 points as of 2:30 p.m. EST. Propelled by the large majority of its 30 blue-chip stocks, the index is inching back toward its record high set last year. UnitedHealth Group (NYSE:UNH) was up 3.6% as the big winner in a huge day for health insurance stocks across the country, while fellow Dow health care giant Pfizer (NYSE:PFE) has also picked up steam. Let's catch up on what you need to know.
Medicare cuts don't faze investors
UnitedHealth investors got a scare at the end of last week when the Obama administration announced proposed cuts to Medicare payouts in 2015. However, many industry observers had expected deeper reductions to the payments, particularly to Medicare Advantage, where the administration's cuts likely will amount to a 3.55% rate slash for next year. That's at the low end of what Humana (NYSE:HUM), one of UnitedHealth's top rivals and one of the leading Medicare Advantage providers, had anticipated. That was good enough to spike shares across the industry.
Make no mistake, the rate cut will hit Medicare performance at UnitedHealth, Humana, and other top insurers in a big way next year, making potential rising costs from Obamacare's rollout all the more painful. With roughly 30% of Medicare subscribers enrolled in Medicare Advantage plans, a substantial amount of business at the largest insurers is under fire. However, even these newly announced reductions aren't final: expect a big push by the industry and other concerned parties to pull back those reductions. By the time April rolls around, final cuts to Medicare could end up much smaller. In the end, UnitedHealth and its rivals still look strong heading into 2015.
Pfizer's stock has rallied by 1.4% after the company announced that a new study for its Prevnar 13 childhood pneumonia vaccine showed the drug's prevention of pneumonia in elderly patients aged 65 and up in a study of more than 85,000 patients. It's potentially a mammoth win for Pfizer and its top vaccine, which counts annual sales of more than $4 billion. Analysts have projected that expanded usage for the vaccine in battling pneumonia could send annual revenue soaring to more than $5 billion.
Finally, Microsoft's (NASDAQ:MSFT) stock is among the Dow's worst today with a 0.34% drop. Microsoft today announced a 70% price cut for its Windows 8.1 operating system as competition puts pressure on this usually dominant OS maker. Windows 8 has struggled to catch on with users as fast as previous iterations of the ubiquitous Windows OS, even though more than 200 million subscriptions to the software have been sold since its launch, according to Microsoft. The company has angled its latest operating system to take advantage of the mobile rise and the fall of the PC segment. But with plenty of options for selective users in the OS space, Microsoft will have to appeal to price-conscious buyers to keep up.
Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool owns shares of Microsoft. 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.