Between a change of heart for insurers in the health-care sector and strong U.S. auto sales, the broad-based S&P 500 (^GSPC +0.37%) is once again off to the races, eclipsing another all-time record high.
U.S. auto-sales figures released today also shed light on an improving automotive industry -- at least domestically. Ford (F +9.22%) was a big bright spot, showing unit sales growth of 6% in March for its best monthly performance in almost six years. Utility sales rose 14%, and its iconic F-Series trucks saw a 16% boost in unit sales. Higher automotive sales are indicative of consumers' willingness to spend, and with consumer spending accounting for so much of U.S. GDP, that's a bullish sign that the recovery is still ongoing.
All told, the S&P 500 finished the day higher by 8.08 points (0.52%) to close at 1,570.25.
But, make no mistake about it: Today was almost entirely about the health-care sector. In fact, each of the top six performers in the S&P 500 were health-care components.
Leading the charge higher were companies with exposure to Medicare Advantage, a supplemental health-care benefits plan targeted at seniors that offers broader coverage and lower out-of-pocket costs for a fee. In February, the Centers for Medicare and Medicaid Services, or CMS, had cautioned insurers to expect a drop in Medicare Advantage reimbursement rates. Last night, we learned that the CMS had reversed that decision and instead of a 2.3% drop in rates, insurers were going to see a 3.3% boost in reimbursements. The reasoning behind the sudden change of heart had to do with the rate at which doctors get compensation, which the CMS now estimates won't drop as much as it previously forecast.
This is the primary reason Humana (HUM +1.41%), DaVita Healthcare (DVA 0.07%), and the nation's largest health insurer, UnitedHealth Group (UNH +1.57%), advanced by 5.5%, 6.1%, and 4.7%, respectively, and were the top performers in the S&P 500. Humana, in particular, garners nearly two-thirds of its revenue from Medicare Advantage plans, so this will have an immediate and direct impact on its bottom line. UnitedHealth Group gets only about 25% of its revenue from Medicare Advantage, so its gains were a bit more tempered. The same can be said for DaVita, which gets the majority of its profits from its dialysis centers rather than its physical networks.
