Categories:Investments,Other,US

Obamacare decision could rally markets

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Equity markets have been pelted with unrelenting bad news, from disappointing American employment, to eurozone jitters, to China’s weak purchasing managers index.

Investors are scratching their heads to come up with any silver lining that might catalyze some kind of market bounce in weeks ahead.

Here’s one: the American Supreme Court is due to rule in June on the validity of the Patient Affordable Care Act, aka Obamacare, and that decision carries far reaching political, fiscal and economic consequences. When the justices heard arguments in March, the court appeared likely to split five-four, along partisan lines, with Justice Kennedy casting a swing vote. The ruling, however, could encompass a wide range of outcomes. The court might strike or uphold the entire law, strike the individual mandate that requires most American residents to carry “minimum essential healthcare coverage,” or disallow certain related tax provisions.

The decision on Obamacare clearly holds huge political implications for the upcoming presidential election and beyond, but no one is sure how it will play out. If the court affirms the healthcare law, Republicans - who regard the legislation as intrusive government overreach - may use the legislation’s survival as a rallying cry in November, to make the case that a fresh administration is necessary to overturn the law. But if the court tosses it out, Democrats could benefit from an outcry against rising healthcare costs, Democrat strategist James Carville announced in March. “The Republican party will own the healthcare system for the foreseeable future,” he warned. (blog continues below)

As for financial markets, an affirmation of Obamacare might well depress stocks overall, while providing some boost to healthcare and insurance companies, which stand to gain from increased healthcare spending. In the days ahead, keep an eye on rising volumes in major health stocks, like Humana, for a clue that an announcement is pending. There is reason to expect the critical court decision will leak out ahead. A huge number of Supreme Court clerks and staffers will have had access to ongoing deliberations since March. Bears, beware. A Supreme Court ruling against Obamacare could be a catalyst to spark a rally.

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Vanessa Drucker is the American Editor of Fund Strategy, based in New York City. She has worked as a financial journalist for 20 years. In the 1980s, she practiced banking and securities law on Wall Street, and is the author of two business novels. Vanessa can be contacted at vanessa.drucker@centaur.co.uk.

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