MARKET SNAPSHOT: U.S. Stock Investors Slam Everyone But Insurers

By Kate Gibson

U.S. stock investors on Monday flocked to major insurers, with the health-care sector as the sole industry group not losing ground in Monday's sharp decline, after the White House appeared to retreat from one controversial aspect of its attempted overhaul of the nation's health-care system.

"The stock market doesn't like that much government intrusion, or such big change. That's why gridlock is preferable," said Peter Bookvar, equity strategist at Miller Tabak.

While the broad market was slammed, shares of large health insurers rallied as the Obama administration looked to be backing off its plan to give Americans the option of signing up for a government health-insurance option.

"Health care can outperform in a declining stock market, but what's going on today is that investors have a growing belief that a public plan will not be part of the final solution," said John Sullivan, director of research at Leerink Swann, a health-care investment bank. "If a public plan is not part of the solution, that's good news for managed care."

Up nearly 59% year to date, shares of Coventry Health Care Inc. (CVH) on Monday rose 4.4%; shares of Aetna Inc. (AET) gained 4.8%, while UnitedHealth Group Inc. (UNH) rose 1.5% and Cigna Corp. (CI) advanced 3%.

The rise in insurer stocks came in the wake of Warren Buffett's Berkshire Hathaway Inc. on Friday reporting it had purchased a stake in medical-supplies firm Becton, Dickinson & Co. (BDX) and upped its holdings in drugs and medical-products company Johnson & Johnson (JNJ) in the second quarter. Berkshire reported reduced holdings in insurance goliaths WellPoint Inc. (WLP) and UnitedHealth.

On the Dow Jones Industrial Average (DJI), pharmaceutical giant Pfizer Inc. was one of two shares eking out gains, its stock up nearly 1% after Merrill Lynch reinstated coverage of its stock with a buy.

Tallying its worst single-day drop since July 2, the Dow industrials finished at 9,135.34, off 186.06, or 2%. The S&P 500 Index (SPX) fell 24.36 points, or 2.4%, to 979.73. The Nasdaq Composite Index (RIXF) declined 54.68 points, or 2.8%, to 1,930.84.

"Today we fell victim to outsized moves in a low-volume market," said Art Hogan, chief market strategist at Jefferies & Co.

Health-care 'minefield'

Regardless of what happens with health-care reform, investors would be wise to tread carefully. Miller Tabak's Bookvar called health-care stocks a "minefield," given that Medicare makes up so much of health-care insurance.

"When the government is one of your biggest customers, whether you're a product maker or a hospital, the economics are not free-market. When the government can change reimbursement at the snap of a finger, it's not the same as a food company," said Bookvar, referring to consumer staples, another sector viewed as defensive.

The Food and Drug Administration "can strike down a biotech drug on any particular day," he added, offering another example of the government's current role in the health-care sector.