By Kate Gibson

As U.S. stocks seesawed before a nearly flat finish Wednesday, so did the health-care sector, with medical-device makers advancing and large insurers falling as investors weighed the impact of Sen. Edward M. Kennedy's death on prospects for reforming the U.S. health-care system.

"You could argue the passing of Kennedy may expedite things in Congress, given the sympathy for a cause very near and dear to him," Michael Sheldon, chief market strategist at RDM financial Group, said of Kennedy's death early Wednesday morning. .

"I know there will be a lot of the sentiment 'Let's pass this for Ted.' But, practically speaking, it's going to be tough," said Hugh Johnson, chairman of Johnson Illington Advisors.

"It's not just that he's been for universal health care, it's not just that he's for being able to change jobs and preserve your health care coverage, and it's not just that he's against insurance companies denying coverage because of pre-existing conditions. It's that when it comes to getting stuff done in Congress, he was very important," said Johnson.

On Wall Street, industrials and materials paced losses and telecommunication service and consumer discretionary shares fronted gains as stocks finished nearly flat. The Dow Jones Industrial Average (DJI) gained 4.23 points to end at 9,543.52, extending its winning streak to a seventh day in a row. The S&P 500 Index (SPX) added less than 1 point to 1,028.12, and the Nasdaq Composite (RIXF) also rose fractionally to 2,024.43.

Of the S&P's 10 industry groups, health care held edged mildly lower, with insurer UnitedHealth Group Inc. (UNH) down most sharply, losing 3.3%. The stock is up nearly 9% so far for the year. Medical-device makers Becton, Dockinson and Co. (BDX) and St. Jude Medical Inc. (STJ) were among the shares fronting the sector's gains, both up about 1.5%.

Off 0.2% on the day, Tenet Healthcare Corp. (THC), an investor-owned health care services company, is up almost 308% for the year so far. The company disclosed in a regulatory filing this month that it in July bought back $68 million in debt from the open market in a move to cut its total debt and yearly interest costs.

The sector, with a market valuation of $1.2 billion, represents nearly 14% of the S&P 500's overall value, behind information technology, with a market valuation of nearly $1.7 billion, or nearly 19%, and financials, valued at nearly $1.4 billion, or 15%.

Mixed bag

"The thinking is if the government comes in and dictates pricing, then that could be a negative for [health maintenance organizations] which are forced to compete against the government. On the other side of the equation, HMOs may also benefit as some of the uninsured gain access to health care and use HMOs for administering health care," said RDM's Sheldon.

"Health-care stocks will be up and down," he forecast, "until we have a better idea of what legislation will be passed and when."

Johnson believes the sector is currently one to be avoided, and offers several reasons.

"It's a defensive sector and if this is a bull market you don't want to own health care, along with consumer staples and utilities," he said.

And, "under most versions of the Obama health-care plan, there should be some pressure on prices and margins for health-care companies, given one of the big issues here is to reduce the cost of health care," said Johnson.

The bullish argument for health-care stocks is they're cheap, and in most cases their earnings have been better than expected, he added.