MARKET SNAPSHOT: U.S. Stock Market Factors In Health-care Costs

By Kate Gibson

With health care likely to be a hotly debated topic on Capitol Hill and Wall Street for the foreseeable future, stock market observers on Thursday weighed the impact of possible reform on the bottom lines of U.S. households and public companies.

With the costs of employer-sponsored health soaring more than 100% in the past decade, experts in the aerospace and manufacturing sectors say the skyrocketing costs are hobbling growth and shareholder value.

Large-cap aerospace companies including Northrop Grumman Corp. (NOC), Lockheed Martin Corp. (LMT) and Rockwell Collins Inc. (COL) are among those seeing the cost of their health-care benefits spiking yearly at more than twice the rate of inflation. .

"The big question is whether investors have already factored in the implications of a significant health-care related tax increase into their estimates of consumer spending and corporate profits," wrote Fred Dickson, chief market strategist at Davidson Cos., in a note Thursday.

President Barack Obama threw his support behind a government-run insurance option as one part of a broader health-care plan in a speech Wednesday night before a joint session of Congress.

On Thursday, the health-care sector was among those on the rise, along with the broader market. Up for a fifth consecutive session, the Dow Jones Industrial Average (DJI) added 20.63 points to 9,567.85. The S&P 500 Index (SPX) gained 2.58 points to 1,035.95, while the Nasdaq Composite (RIXF) climbed 7.79 points to 2,068.18.

Health-care companies have witnessed their share of upheaval this year in terms of changes at the top, with the sector leading the rest, according to outplacement firm Challenger & Christmas Inc. The firm on Thursday reported 13 chief executive departures in health care in August, bringing to 134 the count of CEO exits in the sector so far this year.

Another analyst, Jeffrey Kleintop, chief market strategist at LPL Financial, pointed to a recent revival in merger-and-acquisition activity in health care as boosting the sector's performance during the past month, and said he expects the deal-making to continue.

"The credit markets have healed enough to allow specialty drugmaker Warner Chilcott Ltd. (WCRX) to raise about $4 billion to refinance debt and purchase Procter & Gamble Co.'s (PG) drug business," he said of the transaction announced late last month. .

The household products giant and Dow component factored in the sale of its pharmaceutical unit on Thursday, sticking to its fiscal 2010 sales forecast, with its shares recently up nearly 4%. .

Another market strategist, Ed Yardeni of Yardeni Research Inc., said Obama's speech included fairly noncontroversial talking points that could be a starting point toward what he calls a reasonable compromise.

As Yardeni's list puts it:

* The health-care system may work for many of us, but too many Americans aren't receiving sufficient care.

* Even if the system is working well for most of us now, it will be strained to accommodate the needs of retiring Baby Boomers.

* While health care isn't an entitlement, all citizens should have access to good care. It should be universal.

* Health insurance should be transportable. It should not be employer based.

* There should be a way to cover pre-existing conditions.

* Senior citizens should have adequate access to health care regardless of their age.

* Health care should be financed on a pay-as-you-go basis rather than through government deficits.

* We can't all have access to unlimited free care. There must be some limits imposed by the government or by the marketplace.