The Dow Jones Industrials Average (DJINDICES:^DJI) drifted up another nearly 0.2% today, on top of yesterday's 0.8% gain, as speculation continues to heat up among Fed-watchers over the pace of the Fed's eventual withdrawal of its economic recovery efforts.
The Fed's Open Market Committee began meeting today to discuss whether to decrease the rate of its bond purchases, currently set at $85 billion per month, that have been helping to lower long-term interest rates. It's expected to keep the rate the same for now, or perhaps reduce the rate slightly. The outcome of the meeting, which will be announced tomorrow at 2 pm and has been the subject of months of speculation, shouldn't actually matter that much to long-term investors. It is possible, however, that the Fed could inadvertently drive up interest rates, and risk impeding the economic recovery if it signals an intention to remove its stimulus sooner than many expect.
Probably of more importance than today's meeting, Larry Summers withdrew his name from the running for Fed Chair over the weekend. Summers, who helped plan the response to the financial crisis as Director of the White House's National Economic Council from 2009 to 2010, was speculated by many to be the White House's most likely choice to succeed Ben Bernanke in 2014. But, ultimately, Summers pulled out after drawing opposition from Senate Democrats for his role in deregulating Wall Street during the late 1990s.
That makes Fed Vice Chair Janet Yellen the presumptive frontrunner. Yellen, the Fed's most accurate forecaster, is known to favor continuing the Fed's efforts to lower unemployment, and boost economic growth longer than many others at the Fed.
Despite all that, a few Dow stocks failed to join in on today's rally. Dow health-care components UnitedHealth Group (NYSE:UNH), Merck (NYSE:MRK), and Pfizer (NYSE:PFE) all ticked down slightly. It may be tempting to search for explanations, but you can't really conclude much, because health-care stocks in the broader market actually rose today.
Nevertheless, investors are still trying to grapple with how the Affordable Care Act will affect various health-care industries. For instance, health insurers will need to spend at least 80% of premiums on patients, and will no longer be able to deny customers due to preexisting conditions, but they will get access to a slew of new younger, healthier customers. State health insurance exchanges go live January 2014, and insurers are jockeying for how best to position themselves. Similarly, branded drugmakers will have to pay excise taxes, but expanded health coverage for more Americans could bring them more business.
Pfizer and Merck, though, are up 14% and 17%, respectively, so far this year, while UnitedHealth Group, up 37%, has rallied along with other managed-care companies.
Ilan Moscovitz 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.
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