Monday and Tuesday were both up days in the market, yesterday the S&P 500 fell 2% in sharp selling to close at 1,394, just below key support around 1,400.
So what the heck happened?
In a phrase, we experienced the perfect storm of events.
First up, Mario Draghi, head of the European Central Bank (ECB), said that European economies are expected to remain weak in the near term, and that even stalwart Germany is now starting to feel the impact of the sluggish environment there. Then Germany announced that industrial production dropped 1.8% in September, much worse than an expected drop of 0.5%.
Adding to the unease over Europe, Greece's Parliament is getting ready to vote on budget legislation that would include controversial austerity measures required for the country to receive the next round of bailout money, which it needs to avoid defaulting on its debt.
The other factor at play had to do with investors contemplating "what's next" now that the election is behind us. Of course the glaring issue there is the fiscal cliff, which is now front and center again here in the U.S. More specifically, the concern is whether President Obama and Congress can come together on some kind of plan to address this issue head on.
I do expect President Obama and Congress to find a way to avoid a worse-case scenario. It may be a temporary solution to buy time for a more comprehensive plan in the New Year, but with the election now behind us, both parties want to put their best foot forward and strike a deal. It's interesting that the midterm elections two years from now and quite possibly the next presidential election in four years could be heavily influenced by what happens in the next few weeks. The stakes are that high.
Investors are considering is whether even a compromise solution could have an impact on economic growth next year. After three rounds of quantitative easing, we can't expect Federal Reserve stimulus to lift the market by itself; a healthy economy and growing earnings are needed to get the S&P 500 above its September high of 1,475.
The current earnings season is now practically complete, and the picture has been mixed. About 70% of companies have beaten earnings estimates, but earnings are down 0.5% from a year ago, and only about 40% of companies managed to top revenue expectations (and the numbers would look worse if you removed juggernaut Apple from the equation). The lackluster earnings season is the principle reason that the market has given us the pullback we expected since the QE3 inspired rally of September.
I'll be keeping a close eye on how things unfold in the coming weeks, and will be in touch on any necessary actions that you need to take. In the meantime, I'd like to share three exciting post-election stocks with you.3 Post-Election Buys
The election is now behind us, and I'm sure many of you are wondering what sectors stand to benefit the most now that President Obama will be in office for another term. In a nutshell, the healthcare sector stands to be one of the biggest beneficiaries. Obama's win makes the road to broader insurance coverage inevitable, with the potential for over 30 million uninsured to be covered starting in 2014. More people covered by insurance will ultimately mean higher healthcare spending. I expect hospitals to be one of the biggest beneficiaries.
Today, I'd like to share with you three stocks in the healthcare space that I think will weather the volatility ahead--and run even higher as we close out the year.
- HCA Holdings (HCA) owns and operates hospitals, and the company should be able to grow through a number of varied paths, including additional hospitals and surgery centers, its revenue cycle management business (Parallon), and the acquisition of physician networks. HCA's volume growth has outpaced its competitors because it has positioned itself in attractive markets with strong growth characteristics.
- Another interesting company is DaVita HealthCare Partners (DVA), which provides dialysis services for patients suffering from chronic kidney failure. I expect much of the growth to come from its recent acquisition of independent physician association HealthCare Partners, a primary care medical group that offers a full spectrum of healthcare treatment and services.
- Vascular Solutions (VASC) is a little-known medical device company that is leading the fight against the #1 killer in America--heart disease. Even a global economic slowdown won't stop people from getting--and treating--heart disease. VASC has a strong history of developing products that meet unmet needs (such as next-generation catheters), and stands to benefit from the growth of the entire industry.