Merck Leads the Dow Jones Today Higher as Low-Income Patient Subsidies End

Health care stocks are leading the Dow Jones today as Merck moves to end uncertainty over Obamacare.

Mar 26, 2014 at 1:31PM
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The Dow Jones Industrial Average (DJINDICES:^DJI) is up despite mixed reports on the U.S. economy. Merck (NYSE:MRK) is leading the Dow higher after the company said it would no longer subsidize expensive drugs for low-income patients on Obamacare. As of 1:30 p.m. EDT the Dow was up 41 points to 16,409. The S&P 500 (SNPINDEX:^GSPC) was up 11 points to 1,767.

The Dow today is up with 22 of 30 components positive for the day after there were two U.S. economic releases.

Report

Period

Result

Previous

Durable goods orders

February

2.2%

(1.3%)

Durable goods orders Ex-transportation

February

0.2%

0.9%

Markit non-manufacturing flash PMI

March

55.5

54.2

Both reports were mixed. The Commerce Department reported durable goods orders came in well above analyst expectations of 1% growth. If you exclude the transportation sector, which includes the volatile jetliner and automobile markets, the numbers don't look nearly as good. Durable goods orders ex-transportation were up just 0.2% in February, below January's 0.9% growth and below analyst expectations of 0.2%. The low number was the result of a 2.8% drop in spending on capital goods, that is the assets businesses use in their production. A drop in capital goods signals lower business spending across the board.

The other report was Markit's advance look at its services purchasing managers index. The index rose to 55.5, above last month's 53.3, signaling a faster expansion in economic activity than last month.

G

Source: Markit.

While the index is up, a measurement of 55 indicates GDP growth of roughly 2.5%, well below what would be considered desirable in a low interest rate environment. The other slightly worrisome sign was that the measure of new business fell to its lowest level since late 2012, signaling business growth may be slowing. Both these reports are important in that they tell us that the economy's slow growth story continues.

Today's Dow leaders
Today's Dow leader is Merck, up 2.2% to $56.40. Merck and GlaxoSmithKline said they will no longer subsidize expensive drugs for low-income patients on Obamacare. The two pharmaceutical giants are taking this action after a prolonged debate over whether the subsidies are legal. Two regulators, U.S. Department of Health and Human Services and the Centers for Medicare and Medicaid Services, have issued differing opinions over the matter.

 Other Dow pharmaceutical giants Pfizer and Johnson & Johnson (NYSE:JNJ) are also up today. Johnson & Johnson told Bloomberg it thinks the payments are legal. While some attribute Merck's rise today to not paying the subsidies, by that logic Pfizer and Johnson & Johnson should not be up. I suspect the companies are all up as investors see this move by Merck and GlaxoSmithKline as forcing the government into finally ending the uncertainty over the matter. Businesses and investors alike do not like uncertainty and so an end of uncertainty on the matter will be a boon to investors in all of the health care giants, especially those dealing with Obamacare.

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Dan Dzombak has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. 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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