On Thursday, the Dow Jones Industrials (DJINDICES:^DJI) rose 32 points, falling just short of setting another new high. Still, the Dow managed to do much better than the rest of the stock market, as both the S&P 500 and the Nasdaq lost ground on the day. A large set of earnings reports last night and this morning added volatility on several fronts, as a mixed earnings season begins to draw to a close. Within the Dow, though, Merck (NYSE:MRK) and UnitedHealth Group (NYSE:UNH) were the biggest decliners on the day.
In part, today's drop for Merck and UnitedHealth Group might simply have come from general investor disdain for health-care-related stocks. Falling biotech stocks were partially responsible for the decline in the Nasdaq, and many health-care stocks have seen massive runs during the past year as speculation rises about takeover battles and the need for larger players in the space to buy out smaller counterparts in order to add to their development pipelines. Indeed, M&A activity has risen to the highest levels of the industry, with deal proposals that, in at least one case, could well end up far above the $100 billion level.
Some of Merck's 1.8% decline today came from an analyst downgrade, with investors growing worried about the extent to which the drug company had seen share-price gains earlier in 2014. Merck has been held back during the past several years by its patent-cliff issues, but more recently, shareholders have wanted to move past those issues and focus more on Merck's growth opportunities. Nevertheless, Merck still has to deal with ever-present competitive forces that could jeopardize even its Januvia and Janumet complex of drugs. Moreover, as the need for mergers increases, Merck could well end up having to overpay just to keep even with its main rivals, and that could end up eating into a big part of the $14 billion payday Merck just got from selling off its consumer-products unit.
UnitedHealth Group's 1.3% drop, however, merely represented a pullback from yesterday's more extensive gains after one of its main rivals issued a favorable earnings report. On the whole, the implementation of the Affordable Care Act has met many of the expectations that UnitedHealth and other health-insurance companies had for the legislation, with a significant number of new enrollees and at least the potential for greater growth as a result. It'll take time to see whether the restrictions that Obamacare puts on UnitedHealth and its peers will outweigh that opportunity, but at the very least, investors appear to have missed what could have been cataclysmic drops in sales and profits as a result of the health-care law.
With the Dow just below record levels, it's anyone's guess whether it will set a new record tomorrow, next week -- or years from now. Focusing on the weaker members of the Dow Jones Industrials should give you a sense of how likely the average is to overcome their negative influence.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group. 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.